U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

58–251 PDF 2011

COMPETITION IN THE EVOLVING 

DIGITAL MARKETPLACE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COURTS AND 

COMPETITION POLICY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 16, 2010 

Serial No. 111–147 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DANIEL MAFFEI, New York 

JARED POLIS, Colorado 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COURTS AND COMPETITION POLICY

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia, Chairman 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

CHARLES A. GONZALEZ, Texas 

SHEILA JACKSON LEE, Texas 

MELVIN L. WATT, North Carolina 

MIKE QUIGLEY, Illinois 

DANIEL MAFFEI, New York 

JARED POLIS, Colorado 

HOWARD COBLE, North Carolina 

JASON CHAFFETZ, Utah 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

BOB GOODLATTE, Virginia 

DARRELL ISSA, California 

GREGG HARPER, Mississippi 

CHRISTAL SHEPPARD, Chief Counsel 

BLAINE MERRITT, Minority Counsel 

(III) 

C O N T E N T S 

SEPTEMBER 16, 2010 

Page 

OPENING STATEMENTS 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Courts and 

Competition Policy ............................................................................................... 1 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Chairman, Subcommittee on Courts and 

Competition Policy ............................................................................................... 2 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Chairman, Committee on the Judiciary, and Member, 

Subcommittee on Courts and Competition Policy ............................................. 3 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Ranking Member, Committee on the Judiciary ......................... 4 

WITNESSES 

Mr. Richard Feinstein, Director, Bureau of Competition, Federal Trade Commission, Washington, DC 

Oral Testimony ..................................................................................................... 6 

Prepared Statement ............................................................................................. 8 

Mr. Edward J. Black, President and CEO, Computer and Communications 

Industry Association, Washington, DC 

Oral Testimony ..................................................................................................... 17 

Prepared Statement ............................................................................................. 19 

Mr. Morgan Reed, Executive Director, Association for Competitive Technology, Washington, DC 

Oral Testimony ..................................................................................................... 29 

Prepared Statement ............................................................................................. 31 

Mr. Scott C. Cleland, President, Precursor, LLP, McLean, VA 

Oral Testimony ..................................................................................................... 39 

Prepared Statement ............................................................................................. 41 

Mr. Geoffrey A. Manne, Executive Director, International Center for Law 

and Economics, Lewis and Clark Law School, Portland, OR 

Oral Testimony ..................................................................................................... 94 

Prepared Statement ............................................................................................. 96 

Mr. Mark N. Cooper, Ph.D., Consumer Federation of America, Washington, 

DC 

Oral Testimony ..................................................................................................... 105 

Prepared Statement ............................................................................................. 107 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Lamar Smith, a Representative in 

Congress from the State of Texas, and Ranking Member, Committee on 

the Judiciary ......................................................................................................... 168 

Prepared Statement of the Honorable Howard Coble, a Representative in 

Congress from the State of North Carolina, and Ranking Member, Subcommittee on Courts and Competition Policy .................................................... 173 

Page

IV 

Material submitted by the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Chairman, Committee on the 

Judiciary, and Member, Subcommittee on Courts and Competition Policy .... 176 

Response to Post-Hearing Questions from Richard Feinstein, Director, Bureau 

of Competition, Federal Trade Commission, Washington, DC ......................... 179 

(1) 

COMPETITION IN THE EVOLVING 

DIGITAL MARKETPLACE 

THURSDAY, SEPTEMBER 16, 2010 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS AND

COMPETITION POLICY

COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:04 a.m., in 

room 2141, Rayburn House Office Building, the Honorable Henry 

C. ‘‘Hank’’ Johnson, Jr. (Chairman of the Subcommittee) presiding. 

Present: Representatives Johnson, Conyers, Gonzalez, Watt, 

Quigley, Maffei, Polis, Coble, Issa, Harper, and Smith. 

Staff present: (Majority) Christal Sheppard, Subcommittee Chief 

Counsel; Anant Raut, Counsel; Rosalind Jackson, Professional Staff 

Member; (Minority) Sean McLaughlin, Chief of Staff and General 

Counsel; Stewart Jeffries, Counsel; and John Mautz, Counsel. 

Mr. JOHNSON. This hearing of the Committee on the Judiciary, 

Subcommittee on Courts and Competition Policy will now come to 

order. Without objection, the Chair is authorized to declare a recess. 

Today’s hearing is entitled ‘‘An Antitrust System for the 21st 

Century,’’ and in today’s hearing we will explore a number of competition issues in the digital marketplace. But first, I would like for 

us to kind of go out of order today as far as the Member opening 

statements are concerned. At the request of the Ranking Member 

Coble, he is going to give his statement first, and I will follow. 

Mr. COBLE. Mr. Chairman, I thank you for that. I have a dermatology appointment, so I will go let him break out his blowtorch 

and submit to my face, and I will be back in due time. And I thank 

you, Mr. Chairman. 

Mr. Chairman, when we last met in July, I made the observation 

that given the impact of antitrust law on the American economy, 

it is vital that we examine how well these laws are working, particularly in light of the innovation that today’s high-tech economy 

has brought. 

Today we have an opportunity to examine what level of antitrust 

enforcement is appropriate in the evolving digital marketplace. 

This evolving digital marketplace includes new products such as 

smartphones and the apps that run on them to new services such 

as mobile advertising. 

It includes old businesses such as publishing companies, which 

are trying to break into new platforms such as tablet computers 

2 

like the iPad, and it includes new companies like many of the small 

software developers that are writing the apps for smartphones. 

These new technologies offer a wealth of opportunities both for 

individuals and for the economy as a whole; however, they also 

pose challenges. For this hearing the principal challenge is how to 

ensure that these companies are competing rigorously and fairly. 

Full and fair competition yields benefits for all consumers in the 

form of lower prices, higher quality and greater supply of goods. 

Our witnesses today will discuss the relative benefits of aggressive antitrust enforcement in these developing markets. They will 

also discuss whether some types of potentially anticompetitive conduct, such as vertical mergers, are particularly worrisome in this 

new marketplace. 

I am in favor of strong antitrust enforcement, Mr. Chairman, because I think it helps to ensure competitive markets. However, I 

am aware that some scholars are concerned and worry about the 

impact of aggressive enforcement on developing markets, particularly whether such enforcement slows new innovations. 

While this is an antitrust hearing, I would be remiss if I did not 

address some of the concerns that arise from these new digital 

markets and services. How, for example, do existing copyright holders ensure that their rights are protected in this new digital marketplace? How do companies use our private information, information, I might add, with which people willingly part with—with 

which they willingly part on social networking sites, to make a 

profit? 

These copyrighted privacy concerns may not be competition concerns per se, but they are important issues that we as policymakers 

need to be aware of. And for the purposes of this hearing, I am curious to what extent, if any, these other values could be or should 

be a part of our antitrust analysis. 

I look forward to hearing the witnesses today and yield back the 

balance of my time. And, Mr. Chairman, again I thank you for the 

courtesy, and I will return imminently. 

Mr. JOHNSON. Thank you, Representative Coble, and we look forward to your return. And you are taking the gift that you brought 

for me with you—— [Laughter.] 

And I guess that means that you shall return—— 

Mr. COBLE. I shall return. 

Mr. JOHNSON [continuing]. With a bigger gift. [Laughter.] 

First, ladies and gentlemen, thank you. We start this hearing on 

a fundamental question critical to this Subcommittee’s jurisdiction, 

and that is what should be the role of antitrust law in emerging 

industries? 

The reason why we have antitrust laws in the first place is that 

competition without any restraints can harm consumers. When 

companies compete against each other for market share, they innovate, and that keeps prices low, and consumers win. When companies eliminate their competitors, consumers lose, because the companies use their dominance to fatten their bottom line. 

Now, we have heard a number of people argue that there should 

be less antitrust enforcement in emerging technologies. These markets are constantly changing, they argue. The company on top 

today may in fact be gone tomorrow. They say that enforcing the 

3 

antitrust laws too strictly in these markets will only discourage innovation and new competitors. Then again, too little innovation 

could have just the opposite effect. 

Companies that jump out to an early lead in their fields could 

establish the default standards for their new technologies or become that go-to spot for both users and advertisers, making it more 

difficult for later entrants to crack into the market. 

The fact is you can’t rely on industries to police themselves. Ten 

years ago Congress took the leash off of Wall Street. Everyone assumed that the banks would compete more vigorously with each 

other and wouldn’t do anything to endanger themselves or the market. 

Just the opposite happened. The banks got so caught up in trying 

to beat the other banks that they ended up bringing down the 

whole system, wiping out hundreds of billions of dollars in the average person’s savings retirement incomes and pensions. 

In my opinion antitrust enforcement needs the balance. It is like 

holding the reins of a horse. Hold them too tightly and the horse 

stops, or the horse may even buck. And if you hold those reins too 

loosely, then the horse goes out of control. 

This issue is at the heart of the markets that will be discussed 

today. Should antitrust enforcers stand back and let these markets 

play themselves out, or are these markets in danger of losing the 

spirit of competition that has marked their early stages? 

I, for one, don’t want businesses to fear our actions today. The 

role of government should be to foster competition and drive economic growth, not stand in the way of business. We want to partner with businesses, not be their nanny. To that end if businesses 

are concerned about anticompetitive practices in their industries, I 

want them to know that my door is always open. 

Earlier this week, I heard from a constituent, Will Seippel, president of WorthPoint, an Internet startup at Georgia Tech located 

near my district. And Mr. Seippel is a resident of my district. He 

raised concerns with me about how his company’s position has fallen in Google search results over time. But I don’t want to turn 

today into a forum for Google bashing. I want to help Mr. Seippel 

and Google work together to resolve their differences, with Congress taking the least intrusive role possible. 

Just as importantly, we need businesses to come forward and 

help to shape good policy when we ask. I look forward to delving 

into these questions and many others over the course of this hearing. 

And I thank Mr. Coble for his statement. 

At this time I will recognize the Honorable Mr. Conyers, a distinguished Member of the Subcommittee and also the Chairman of the 

full Committee. 

Mr. CONYERS. Thank you very much, Chairman. 

And I welcome all of the witnesses. 

The attendance here by our visitors indicates that they, too, recognize this is a very important hearing today, but it is also part 

of a continuing series of hearings that are going to occur on the 

subject. Would that one hearing could take care of a subject of this 

complexity. 

4 

Well, this market is evolving so rapidly that what we say here 

today and what is said here today may in fact be obsolete at the 

close of the business day today. That can happen. 

We have got a number of interesting witnesses. I commend you 

on the diversity of the panelists that you have invited to join us 

for this hearing, and I look forward to their comments. 

The only thing I would add—and I will put my statement in the 

record—is that the online and mobile advertising space is too concentrated and is even getting more so as we speak. This is not an 

anti-Google remark that I am making. 

Secondly, antitrust law needs to evolve to fit the digital world, 

where vertical acquisitions are even more worrisome than before. 

And it is important to consumers that various products designed to 

access online content work together to the greatest extent possible. 

Now, somewhere along the line, maybe even starting today, we 

are going to begin to put together an encyclopedia of where all this 

digital computerized Web page, Web site, all of these things are 

going to have to come together with a little bit more—they will 

have to fit together more than they have in the past. 

Right now, and I think there is going to be a remark or two 

about this, but there are some unleashed forces running around in 

the subject matter that have to be acknowledged and determine 

how they are going to be controlled. And I am hoping that some 

parts of that issue will come out in the discussion that goes on 

today. 

And I thank again the Chairman and the Ranking Member for 

bringing us together in this way. 

Thank you, sir. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

I will now recognize Mr. Lamar Smith, the distinguished Ranking Member of the full Committee and also a Member of this Subcommittee. 

Mr. Lamar Smith? 

Mr. SMITH. Thank you, Mr. Chairman. 

America is undergoing a revolution in the way that it conducts 

business. In the late 1980’s computers became commonplace office 

machinery. The late 1990’s and early 2000’s saw the explosion of 

the Internet and the growth of e-commerce. 

Today the revolution is fully mobile and has moved to the phones 

we carry everywhere. These phones, which are actually small computers, have the capability to send e-mails, play videos, surf the 

Internet, give directions and make purchases, all while the user is 

in motion. 

Indeed, smartphones have created a marketplace for software, 

the App Stores, which did not even exist 2 years ago. The app developers in turn are creating new and innovative ways to utilize 

smartphones far beyond what their creators imagined. They enhance consumer welfare, provide new markets for goods and services and ultimately, of course, could help create jobs. 

However, new markets and business models also raise questions 

about how companies are competing and whether their actions are 

pro-competitive or anticompetitive. This hearing is an excellent opportunity to take a high-level view of the developing industry still 

5 

in its infancy and ask what level of antitrust enforcement is appropriate. 

I am a believer in vigorous antitrust enforcement. I believe it 

leads to more competition, lower prices, more choices and better 

products for consumers. However, antitrust enforcement is not 

without risk. Over enforcement, whether through the antitrust 

agencies or the private bar, can deter business practices that would 

ultimately help consumers. On the other hand, under enforcement 

could allow companies to become firmly entrenched through anticompetitive practices that hurt their rivals and ultimately hurt 

consumers. 

Today’s hearing is for general oversight purposes, and the witnesses will discuss these issues in general terms. However, it 

would be ignoring the obvious if I didn’t observe that this hearing 

appears to be intended to address the business practices of two 

companies, Google and Apple. 

Apple recently made headlines because it changed the rules it 

imposed on app developers to address concerns that the previous 

rules might diminish competition. Apple was able to resolve this 

issue without the parties resorting to litigation and without government intervention. Innovative products and services, after all, are 

rarely created in the courtroom. 

With respect to Google, much has been made about its recent acquisitions of a mobile advertising platform and a travel search platform. I think an antitrust review of these transactions by the agencies is appropriate. That is what antitrust laws are for. 

However, just because a company is big does not mean it is bad. 

Just because it enters into new lines of business does not mean it 

is going to dominate those new markets. And just because competitors complain about the practice does not mean that it is necessarily anticompetitive. 

However, it is equally important that antitrust enforcers and policymakers keep their eyes on these developments to ensure that 

they do in fact benefit consumers. So I think this hearing is a very 

useful beginning to that end and to help us gain a better understanding of that process. 

And with that, Mr. Chairman, I yield back. 

Mr. JOHNSON. Thank you, Congressman. I thank you for your 

statement. 

There being no other Members who have statements that they 

would like to give at this time, I will include statements in the 

record. 

I am now pleased to introduce the witnesses for today’s hearing. 

Our first witness is Rich Feinstein, director—is it Feinstein or— 

okay. Rich Feinstein, director of the Bureau of Competition for the 

Federal Trade Commission. 

Welcome back, sir. 

Our next witness is Ed Black. Mr. Black has served as president 

and CEO of the Computer and Communications Industry Association since 1995. 

Welcome back, sir. 

Next we have Mr. Morgan Reed. Mr. Reed is the executive director of the Association of Competitive Technology. 

Welcome, Mr. Reed. 

6 

Our next witness is Scott Cleland. Mr. Cleland is the president 

of Precursor, LLP and the operator of Googlopoly—excuse me, 

Googlopoly—googlopoly.net, a blog. 

Welcome, Mr. Cleland. 

Next we have Mr. Geoff Manne. Professor Manne is the executive 

director of the International Center for Law and Economics at 

Lewis & Clark Law School. 

Welcome, Professor. 

And finally, we have Dr. Mark Cooper. Dr. Cooper is the director 

of research for the Consumer Federation of America and has appeared numerous times before the Congress to provide a consumer’s perspective. 

Welcome back, Dr. Cooper. 

Thank you all for your willingness to participate in today’s hearing. Without objection, your written statements will be placed into 

the record, and we would ask that you limit your oral remarks to 

5 minutes. You will note that we have a lighting system that starts 

with a green light. At 4 minutes it turns yellow, then red at 5. 

After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions subject to 

the 5-minute limit. 

Mr. Feinstein, please begin. 

TESTIMONY OF RICHARD FEINSTEIN, DIRECTOR, BUREAU OF 

COMPETITION, FEDERAL TRADE COMMISSION, WASHINGTON, DC 

Mr. FEINSTEIN. Chairman Johnson and Members of the Subcommittee, I am Richard Feinstein, director of the Bureau of Competition at the FTC. I want to thank the Committee for this opportunity to talk about some of the commission’s efforts to apply sound 

competition policy to dynamic markets. My comments today are my 

own and may not reflect the view of the commission or the views 

of any individual commissioner. 

Despite the profound changes in the American economy since the 

passing of the Sherman Act in 1890, our antitrust laws remain basically the same, and they have proven that they could still do the 

job. Some have argued that there should be different rules for markets characterized by rapid technological development. 

But Congress drafted the antitrust laws in general terms to accommodate changing markets and new products, and the laws are 

flexible enough to meet the challenges of the high-tech era. In fact, 

by keeping markets open to new products and to successive waves 

of innovation, the antitrust laws promote dynamic markets and 

contribute to the continued success of American businesses at home 

and around the world. 

Of course, the antitrust laws are not enforced in a vacuum. Congress created the FTC specifically to guide competition policy 

through changing competitive environments. To that end we hold 

public workshops, engage in economic research, and discuss competition issues with other policymakers like the Members of this 

Committee to develop and refine our understanding of established 

and developing markets. 

Today I am going to talk briefly about two of the areas in which 

the commission is applying the tried and true principles of competiVerDate Aug 31 2005 09:38 Mar 01, 2011 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\091610\58251.000 HJUD1 PsN: 58251
7 

tion to markets characterized by technological change—monopolies 

and mergers. 

Turning first to monopolies, broadly speaking, there is a fundamental tension when dealing with unilateral conduct by a firm that 

is trying to obtain or maintain monopoly power. On the one hand, 

it is not illegal to have a monopoly, and many monopolists obtain 

their status by inventing new and highly desired products. On the 

other hand, competition policy generally relies on rivalry to discipline the behavior of firms in the market. 

The challenge is to use the commission’s antitrust authority to 

prevent unreasonable exclusionary and predatory conduct by firms 

with monopoly power by making sure not to limit their incentives 

to innovate and to compete aggressively. 

For example, last December the commission charged that Intel 

Corporation had engaged in various unfair methods of competition 

and unfair practices to block or slow the adoption of non-Intel products. By this conduct Intel illegally maintained its monopoly on 

computer chips or CPUs and sought to obtain a monopoly on 

graphic processing units. 

Intel recently agreed to settle the commission’s charges and to 

propose settlement aims to prevent the recurrence of Intel’s illegal 

conduct without stifling its ability to continue to innovate and compete fairly. It does not seek to strip Intel of its chip monopoly, but 

it does open the door to fair and vigorous competition in these markets. That way competition on the merits, not Intel’s illegal practices, will determine the future path of competition in these markets. 

Turning to merger enforcement, as you know, Section VII of the 

Clayton Act outlaws mergers whose effect may be substantially to 

lessen competition or tend to create a monopoly. So merger analysis is by nature forward-looking. It focuses on what level of competition is likely to occur in the future in a post-merger world. 

One particular challenge when examining dynamic markets is 

that market facts can be hard to pin down. In markets with emerging technologies or rapidly changing product offerings or suppliers, 

there may not be a track record of past competition, or that track 

record may not be relevant to predicting future competition. Often 

there is greater uncertainty about the future path of competition, 

and market shares of leading companies may be less durable in 

these markets. 

A recent example of a merger investigation involving companies 

in a rapidly changing market is Google’s acquisition of AdMob. Initially, we had concerns that the loss of head-to-head competition 

between the two leading mobile advertising networks would harm 

competition. However, toward the end of our 6-month investigation, 

those initial concerns were overshadowed by Apple’s introduction of 

its own mobile advertising network, iAd, as part of its iPhone applications package. 

Because of these changing circumstances, the commission found 

reason to believe that Apple quickly would become a strong mobile 

advertising network. The timing and impact of Apple’s entry into 

the market led the commission to conclude that AdMob’s success to 

date on the iPhone platform was unlikely to be an accurate predictor of AdMob’s competitive significance going forward, whether 

8 

AdMob was owned by Google or not. After viewing all the evidence, 

the commission unanimously voted to close its investigation without taking action against the merger. 

In conclusion, our competition laws have served America well. 

They have proven adaptable to changes in markets and business 

models across a span of more than 100 years. The commission’s 

work enforcing antitrust laws will continue to be an important part 

of our national success in preventing competitive harm in new and 

dynamic markets while fostering and rewarding innovation and entrepreneurship. 

Thank you very much. And I look forward to answering your 

questions. 

[The prepared statement of Mr. Feinstein follows:] 

PREPARED STATEMENT OF RICHARD FEINSTEIN


RF-1.eps
9 


RF-2.eps
10 


RF-3.eps
11 


RF-4.eps
12 


RF-5.eps
13 


RF-6.eps
14 


RF-7.eps
15 


RF-8.eps
16 


RF-9.eps
17 

Mr. JOHNSON. Thank you, Mr. Feinstein. 

Mr. Black, please proceed. 

TESTIMONY OF EDWARD J. BLACK, PRESIDENT AND CEO, 

COMPUTER AND COMMUNICATIONS INDUSTRY ASSOCIATION, WASHINGTON, DC 

Mr. BLACK. Mr. Chairman and Members of the Subcommittee, 

thank you for the opportunity to testify. Thank you for the opportunity to testify today on competition in the digital age. I ask that 

my written statement be included in the record, and I will summarize those remarks. 

CCIA has participated in many major antitrust cases in the hightech era. I hope to offer some insights today from that experience. 

Let me begin by saying that our industry requires antitrust oversight like any other. Since the Sherman Act, antitrust skeptics 

have claimed that the law should not be applied to new industries 

because of new economic forces, that competition could be ruinous 

or was bad for consumers. 

In fact, antitrust enforcement helped pave the way for Silicon 

Valley as we now know it. History shows our industry is particularly susceptible to competitive abuses due to certain aspect of 

high-tech markets, including network effects, intellectual property 

thickets, lock-in and opportunism enabled by architecture. Let me 

focus on three of these three big red flags. 

First, lock-in. Consumers are locked in when the costs of switching from one vendor to another are prohibitively high. Currently, 

CCIA has filed a case against IBM for abusing locked-in customers 

in an attempt to maintain its mainframe monopoly. Legacy users 

of mainframe, who account for 80 percent of the world corporate 

and government data, face huge costs associated with moving their 

data and applications to other systems. Therefore, IBM has been 

able to keep prices artificially high. 

When a few companies pioneered methods to decrease the mainframe switching costs, IBM went on the attack to protect its monopoly using litigation, intimidation, and finally buying up pioneers 

and mothballing their technology. 

The flip side of lock-in is that low barriers to entry diminish competitive risks. In certain markets, especially Internet-centered markets, entry is easy and competition is just a click away. Thus, it 

is easy to lose market share quickly. 

A second red flag is chokepoints. Chokepoints are specific markets through which consumers must pass to access an ecosystem of 

related products and services. Two current examples are semiconductors and Internet access. The FTC’s Intel investigation illustrates the presence of chokepoints in the semiconductor market. As 

the main brain of a computer, the semiconductor is a chokepoint 

of the computing industry. 

As the recent FTC investigation showed, Intel used this 

chokepoint to secretly harm its competitors’ products when it began 

to view graphic processing units as a threat to its own position in 

the chip market. I commend the FTC for its recent settlement regarding Intel’s anticompetitive conduct. It demonstrated its expertise in handling this case. Going forward, however, the FTC must 

aggressively enforce this decree. 

18 

In addition to microprocessors, Internet access is another 

chokepoint. The content applications in Web sites that run on top 

of the transport layer of the telecommunications network represent 

an extremely competitive market or groupings of markets, perhaps 

the most competitive markets in history. 

However, the infrastructure that users need to access the Internet is not nearly as competitive. Most consumers face a duopoly of 

Internet access providers—their phone company and their cable 

company. The current network neutrality debate is really a byproduct of this largely noncompetitive market. 

A final red flag is architecture-driven opportunism, which we 

have seen in the Apple apps controversy. Without getting into too 

much detail, the problem was the potential bait and switch, as it 

appeared that Apple may have baited customers with an open platform, but then switched to a closed platform after consumers were 

locked in. 

Finally, I urge skepticism of special interest exemptions to the 

general rule in favor of free and open competition. The seminal 

2007 Antitrust Modernization Commission report said that there 

must be continued, ‘‘careful analysis and strong evidence for such 

exceptions’’ when supporting them, and even then it said such exceptions should be granted rarely. 

And yet exceptions abound. The Supreme Court has created 

many, including for sports leagues and regulated industries, and 

there are calls for new exemptions such as for Internet news coverage. And, of course, we have long-standing exemptions for what 

the Supreme Court has repeatedly labeled monopolies of those government-granted entitlements to monopolize ideas that we call ‘‘intellectual property.’’ All of these antitrust exemptions must be consistently tested in a crucible of cost-benefit analysis. 

In conclusion, it is critical for antitrust authorities to be watchdogs, because when you are being bullied, it can be risky to speak 

out. But remember also that big doesn’t equal bad. We need innovative disruptive technologies to make it out of the garage and into 

the marketplace. Thank you. 

[The prepared statement of Mr. Black follows:] 

19 

PREPARED STATEMENT OF EDWARD J. BLACK


EJB-1.eps
20 


EJB-2.eps
21 


EJB-3.eps
22 


EJB-4.eps
23 


EJB-5.eps
24 


EJB-6.eps
25 


EJB-7.eps
26 


EJB-8.eps
27 


EJB-9.eps
28 

Mr. JOHNSON. Thank you, Mr. Black. And it is important to 

know that we here at the Subcommittee want to receive such information as you indicated may be available to those who feel threatened or put upon or challenged in any way. And we would love to 

have that kind of information trickling in or pouring in, whatever 

the case might be. Thank you. 

Mr. Reed, please begin. 


EJB-10.eps
29 

TESTIMONY OF MORGAN REED, EXECUTIVE DIRECTOR, ASSOCIATION FOR COMPETITIVE TECHNOLOGY, WASHINGTON, 

DC 

Mr. REED. Chairman Johnson, Ranking Member Coble and distinguished Members of the Committee, my name is Morgan Reed, 

and I would like to thank you for holding this important hearing 

on the evolving digital marketplace. 

I am the executive director of the Association for Competitive 

Technology, or ACT. ACT is an international advocacy and education organization for people who write software programs. We 

represent over 3,000 small and midsize IT firms throughout the 

world. 

For my members the smartphone market represents the single 

largest opportunity for growth in the next decade. As growth in the 

PC market slows, the mobile market is accelerating, even in today’s 

slumping economy. And we are nowhere near the top. True 

smartphones have only 25 percent of the market in the U.S. and, 

more importantly, less than 7 percent in Asia. 

Given the importance of this market to my members, we appreciate that the Committee shares our concern about the continued 

competitiveness. Currently, however, we see the smartphone market as both dynamic and competitive. The latest market share 

numbers show that devices running Nokia’s Symbian operation 

system are currently in the lead at 41 percent. Research in Motion’s Blackberry, which all of you have, is at 18. Google’s Android 

is at 17, and Apple’s iOS, which runs the iPAD and the iPhone, is 

at 15. 

So while Apple may be foremost in people’s mind, it isn’t the biggest player in the smartphone marketplace. In fact, industry analysts at Gartner suggest that Apple’s market share is destined to 

continue falling as Google’s Android grows to be the largest phone 

operating system by 2014. 

Now, despite Apple’s modest share in the smartphone market, 

some have expressed grand conspiracy theories on why Apple’s iOS 

does not support Mobile Flash Player from Adobe. The facts, however, suggest something much more simple. Apple wants to create 

the fastest, most efficient and most stable mobile platform on the 

planet. And the current version of Mobile Flash is not fast. It is 

hard on battery life, and it is not particularly stable. 

Every smartphone vendor, including Apple, Google and Microsoft, Nokia and others, have rejected Flash Player at one time or 

another for many of the same reasons. 

Additionally, our members don’t believe the rules governing Apple’s App Store are harming competition in the smartphone market 

today. With more than 80 percent of our developers creating applications on multiple platforms, developers are following opportunity, 

not fashion. 

And while some are concerned about the over broad nature of 

Apple’s previous restrictions on third-party tools, Apple’s recent update has removed those concerns for our members. And we look forward to developing more incredible applications on the platform. 

However, our members do have some concerns about the future 

of competition in the smartphone ecosystem. While the current 

competitive landscape offers our members bountiful opportunities 

30 

to feed their families and create jobs, Google’s march toward domination of the market presents two challenges for future growth. 

First, the Android platform does not offer the same kind of opportunities for software developers to get paid directly for their applications. Google makes 99 percent of its revenues from online advertising platforms, and therefore strongly pushes developers toward an advertising-funded model. 

And while Google can get fat in a world where all Android applications are advertising-funded, most small businesses will starve 

unless they can attract a massive user base like we see with what 

we all heard about Farmville. 

Second, if your application or service develops the scale necessary 

to survive on advertising alone, Google becomes very interested in 

you. For example, just a few short years ago MapQuest was a goto Web site for online maps and directions. I am sure many of you 

used it. After MapQuest built an impressive market, Google bought 

a company called Where To and integrated its mapping software 

directly into its search results. MapQuest stopped showing up on 

the first page of a Google search and quickly became an also-ran. 

This experience illustrates why many of our members are concerned by Google’s proposed acquisition of ITA, the search engine 

that powers nearly every travel booking app and Web site. Many 

of our members are worried that Google’s plans ‘‘deep integration 

of ITA’s technology could skew the results to favor Google, and 

Google may even cut off the ability to use ITA’s patented technology in mobile applications.’’ 

Now, as veterans of several technology company antitrust cases, 

ACT can sympathize with Google’s position here. It wasn’t that 

long ago they were just two guys in a garage, like many of our 

members. But as the rest of the panel can attest, the rules change 

when you achieve a dominant market share, even when it is gained 

lawfully. 

The same transactions that were simply smart business as a 

startup can be found anticompetitive when you are that dominant 

company in a market. And the DOJ has already determined that 

Google has dominant market shares in both search and search advertising market. Therefore, we expect the DOJ to thoroughly review the acquisition of ITA and ensure that a competitive marketplace is preserved. 

In summary, our members are incredibly excited about the opportunities offered by the smartphone market. The market today is 

competitive and dynamic, but there are some challenges on the horizon, and we hope the Committee will continue to look closely at 

them. Thank you. 

[The prepared statement of Mr. Reed follows:] 

31 

PREPARED STATEMENT OF MORGAN REED


Reed-1.eps
32 


Reed-2.eps
33 


Reed-3.eps
34 


Reed-4.eps
35 


Reed-5.eps
36 


Reed-6.eps
37 


Reed-7.eps
38 


Reed-8.eps
39 

Mr. JOHNSON. Thank you, sir. 

Next, we will hear from Mr. Cleland. 

TESTIMONY OF SCOTT C. CLELAND, PRESIDENT, 

PRECURSOR, LLP, McLEAN, VA 

Mr. CLELAND. Thank you, Mr. Chairman and Ranking Member, 

for the opportunity to testify. My testimony reflects my own personal views and not those of any of my clients in the communications or tech sector. 

I have two digital competition insights for you today. The first 

is a competition digital dichotomy, which is the competition is very 

different in the physical world of network and devices than it is in 

the virtual or online world of applications or information. And so 

the critical difference to finding difference here is in the last 15 

years the evolution of competition in the physical world of networks 

and devices has evolved from monopoly toward competition, while 

the evolution of competition online and virtual has devolved from 

very competitive toward monopoly. 

And my second point today is the Googlopoly is the main antitrust event. Attached to my written testimony is a 40-page presentation. It is the sixth in my research on this topic. You can find 

them at googlopoly.net, the previous ones. 

Let me run through quickly some of my conclusions. Lax antitrust enforcement tipped Google to monopoly and facilitates Internet media monopolization. More is at stake than competition from 

an information access monopoly. Googlopoly threatens economic 

growth, jobs, privacy, intellectual property, a free press, fair elections and cyber security. 

There is no net economic growth or no net job creation in a free 

Internet sector model—only deflationary price spiral, net negative 

growth, property devaluation, job losses and monopolization. The 

consumer does not win from a monopoly control over free and full 

access to distribution. 

Google is a vastly more serious antitrust threat than Microsoft 

ever was. Google has unique total information awareness power, 

because it tracks most everything that happens on the Internet. 

Google’s monopoly secret weapon is that it has deep tracking inspection of everything that passes through the Google cloud. And 

Google is not an honest broker in search. It hides multiple serious 

conflicts of interest. 

Now, let me elaborate on a couple of final insights. Lax antitrust 

enforcement allowed Google to buy its way to an Internet TV monopoly via YouTube, DoubleClick, AdMob, and to extend its search 

monopoly to Internet streaming video, soon to be rebranded as 

Google TV. 

Now, look at the vertical monopoly Google has bought and assembled right under antitrust authorities’ knows—Google Search, 

effectively a billion-person audience with a uniquely comprehensive 

remote control and TV guide; YouTube, the dominant Internet 

video distribution network; DoubleClick, the dominant one-stop 

Internet advertising agency and Nielsen-like actual measurement 

mechanism; and then AdMob, the leading mobile advertising network. 

40 

The result is a Google Internet TV monopoly, or what I call a 

monocaster, a billion viewers, that dominant Internet advertising 

and distribution network, the only comprehensive viewer measurement mechanism, and here no legal media ownership limitations at 

all, which effectively limit all of Google TV’s competitors to a tenth 

of Google’s viewing audience. 

It is stunning that Congress, which has long been obsessed with 

ensuring that no one entity controls the media and which is myopically worried right now about the Comcast-NBCU merger that 

would have about one-fourteenth of the audience that Google TV 

will have, has been totally asleep as Google has assembled a global 

Internet media monopoly right beneath our noses. 

And right now Google is at it again. It is trying to buy its way 

into an eventual monopoly in the travel vertical by buying ITA software. Now, ITA software is the underlying search engine or search 

software that virtually everybody in the online travel business 

uses. So DOJ must scrutinize this ITA transaction, because it is 

the current prime example of how Google buys something and then 

integrates it in, and because it buys something that is dominant, 

it adds that with its dominance, and it is largely game over in that 

new segment. 

So don’t ignore the blue whale in the antitrust ruling, 

Googlopoly. I recommend this Subcommittee strongly urge the DOJ 

to prosecute Google for monopolization of Internet media. Thank 

you for the opportunity to testify. 

[The prepared statement of Mr. Cleland follows:] 

41 

PREPARED STATEMENT OF SCOTT C. CLELAND


SC-1.eps
42 


SC-2.eps
43 


SC-3.eps
44 


SC-4.eps
45 


SC-5.eps
46 


SC-6.eps
47 


SC-7.eps
48 


SC-8.eps
49 


SC-9.eps
50 


SC-10.eps
51 


SC-11.eps
52 


SC-12.eps
53 


SC-13.eps
54 


SC-14.eps
55 


SC-15.eps
56 


SC-16.eps
57 


SC-17.eps
58 


SC-18.eps
59 


SC-19.eps
60 


SC-20.eps
61 


SC-21.eps
62 


SC-22.eps
63 


SC-23.eps
64 


SC-24.eps
65 


SC-25.eps
66 


SC-26.eps
67 


SC-27.eps
68 


SC-28.eps
69 


SC-29.eps
70 


SC-30.eps
71 


SC-31.eps
72 


SC-32.eps
73 


SC-33.eps
74 


SC-34.eps
75 


SC-35.eps
76 


SC-36.eps
77 


SC-37.eps
78 


SC-38.eps
79 


SC-39.eps
80 


SC-40.eps
81 


SC-41.eps
82 


SC-42.eps
83 


SC-43.eps
84 


SC-44.eps
85 


SC-45.eps
86 


SC-46.eps
87 


SC-47.eps
88 


SC-48.eps
89 


SC-49.eps
90 


SC-50.eps
91 


SC-51.eps
92 


SC-52.eps
93 

Mr. JOHNSON. Thank you for adding some passion into such a 

dry subject, if you will. 

Professor Manne—Manne, I am sorry. 


SC-53.eps
94 

TESTIMONY OF GEOFFREY A. MANNE, EXECUTIVE DIRECTOR, 

INTERNATIONAL CENTER FOR LAW AND ECONOMICS, LEWIS 

AND CLARK LAW SCHOOL, PORTLAND, OR 

Mr. MANNE. Thank you. And now for the dry academic viewpoint. 

I want to thank you, Mr. Chairman and Ranking Member Coble 

and the rest of the Members of the Committee for—— 

It was. Is it? Yes. 

My name is Geoffrey Manne. I am the founder and executive director Of the International Center for Law and Economics. I also 

teach at Lewis & Clark Law school in Portland, Oregon. I just 

want to clarify that the International Center for Law and Economics is not affiliated with the school, and while I do speak on behalf 

of the ICLE, I do not speak on behalf of my colleagues at Lewis 

& Clark Law School. I would say that is probably true unanimously of my colleagues at Lewis & Clark Law School. 

I have written widely on the subject of competition policy and innovation and want to mention a forthcoming volume from the Cambridge University Press, for which I am a co-editor, on competition 

policy and intellectual property law under uncertainty regulating 

innovation. And I think it is the existence of uncertainty that animates my remarks today. 

What I want to talk about is what we do with all of the information that we have, sort of a meta question, how do we make a decision about what to do in a world in which things, actions, business 

actions could be anticompetitive and could be pro-competitive. 

It turns out that there is an enormous amount about the economic implications of business conduct that we still don’t understand, and our antitrust laws nevertheless obligate us to soldier on, 

developing sound expectations about the anti-or pro-competitive 

implications of various forms of business conduct nonetheless. We 

would do well to recognize our ignorance. 

In brief, the essential antitrust analysis that I would recommend 

tends to counsel against rather than for enforcement in many circumstances, and this is particularly true in nascent, evolving and 

technologically innovative markets where ignorance about market 

structure, competition, technology and consumer demand is absolutely legion. 

As a result the appropriate approach to antitrust analysis is a 

cautious one that embraces the evidence-based approach to uncertainty, complexity and dynamic innovation contained within the 

well-established so-called error cost framework. The point is not 

that we know that any particular high-tech company’s conduct is 

pro-competitive, but rather that the very uncertainty surrounding 

it counsels caution, not aggression. 

The error cost framework is built on two premises—first, that 

false positives are more costly than false negatives, because selfcorrection mechanisms mitigate the latter, but not the former; and 

second, that errors of both types are inevitable because distinguishing pro-competitive conduct from anticompetitive conduct is 

an inherently difficult task, especially in the face of innovation. 

Both product and business innovations involve novel practices, 

and it turns out that these practices generally result in monopoly 

95 

explanations from the economics profession followed by hostility 

from the courts, although sometimes the process is reversed. 

In the words of Nobel economist Ronald Coase, if an economist 

finds something, a business practice of one sort or another that he 

does not understand, he looks for a monopoly explanation. As in 

this field we are rather ignorant, the number of un-understandable 

practices tends to be rather large, and the reliance on monopoly explanations frequent. 

The fundamental truth of antitrust analysis, as I said, is that the 

very same conduct—aggressive competition—that could be anticompetitive could also be pro-competitive. There is no easy way to 

assess out the differences on the basis of simple or even complex 

legislative or judicial language, and there are lots of incentives 

tending economist, competitors, regulators and others to Dean too 

far the wrong way. 

The cost of hasty intervention is the loss of the consumer benefits 

of aggressive competition both directly and, perhaps more importantly, by the deterrence of future actions that may likewise attract 

costly interventions and penalties. 

Caution is the watchword in these markets, and while some have 

suggested that our antitrust enforcers are asleep at the switch, I 

would suggest that, if anything, they may be too aggressive. From 

the investigations of Google ITA, AdMob and DoubleClick mergers 

to Intel, Microsoft, Qualcomm, Rambus and many others, activity 

here is hardly moribund. 

Mr. Coble mentioned the issue of privacy in this realm, and I 

think that the fact the agencies are thinking about and looking at 

and actively considering actions, antitrust actions, on the basis of 

privacy implications of mergers in particular is a particularly problematic development, because it turns out there is quite literally no 

antitrust relevant theory of privacy that would animate the determination that there is a privacy problem in these mergers. 

Like Rich here, these folks are well-intentioned, smart and as 

knowledgeable as anyone on the topics in which they truck. Unfortunately, it is the inherent limitations of the tools at their disposal 

and the unfortunate fact that prime is not simultaneous that impede them. It is on this assessment most enthusiastically that I 

would disagree with our antitrust enforcers and some courts for 

that matter. We are stuck with the limitations of our knowledge. 

[The prepared statement of Mr. Manne follows:] 

96 

PREPARED STATEMENT OF GEOFFREY A. MANNE


GAM-1.eps
97 


GAM-2.eps
98 


GAM-3.eps
99 


GAM-4.eps
100 


GAM-5.eps
101 


GAM-6.eps
102 


GAM-7.eps
103 


GAM-8.eps
104 


GAM-9.eps
105 

Mr. JOHNSON. Thank you, sir. I think we could probably hold a 

3- or 4-hour discussion with just you and Mr. Cleland. [Laughter.] 

And perhaps we shall do that one day. 

Now, Dr. Cooper? 

TESTIMONY OF MARK N. COOPER, Ph.D., CONSUMER 

FEDERATION OF AMERICA, WASHINGTON, DC 

Mr. COOPER. Thank you, Mr. Chairman. 

The Consumer Federation of America has long believed that digital industries would be an extremely consumer friendly and citizen 

friendly place, if allowed to develop to their full potential. Over the 

past two decades, it has become clear, however, that ensuring digital markets remain vigorously competitive and open is difficult, because these sectors have a tendency to be dominated by a very 

small number of platforms. 

The small numbers problem arises from supply-side demand and 

demand-side economies of scale that push these platforms toward 

something known as winner-take-most outcome. Once these markets tip, they tend not to flip. 

But experience shows that winners are not satisfied to allow the 

underlying economic fundamentals that created their advantage be 

the sole source of their continuing dominance. They immediately 

engage in conscious anticompetitive practice to reinforce and extend their market power. 

Their ability to do so in digital markets is greater than in traditional industries as a result of the strong technological 

complementarities between the platforms and the applications and 

services that ride on them. Because the dominant platform owner 

controls the functionalities on which complementary applications 

and services rely, they can easily foreclose or degrade the quality 

of the product that competes with the applications and services 

they provide. 

Dominant firms create barriers to entry through exclusive deals, 

price discrimination and rebating, manipulation of standards, refusal to deal with, withdrawal of support from, retaliation for dealing with complements and competitors. 

Demand for competing products can be reduced through lock-in 

contracts for core products or complements, including long terms 

and minimum commitment, pre-announcement of features to freeze 

consumers and artificial bundling of products. Bundling can undermine competition, inducing exit, creating barriers to entry, relaxing 

price competition, distorting investment, retarding innovation, and 

expanding market power into new markets. 

I give three appendices that document these practices in three 

important digital industries. 

These anticompetitive practices preserve the dominant firm’s 

market power by undermining potential entrants and increasing 

the applications barrier to entry. They slow and distort innovation 

by driving it toward applications, goods and services that fit into 

the business model of the incumbent platform. They provide for the 

platform owner with the ability and tools to extract surplus from 

consumers with price discrimination and bundling. 

One of the most powerful effects and benefits of the explosion of 

digital technologies is digital disintermediation. Digital techVerDate Aug 31 2005 09:38 Mar 01, 2011 Jkt 000000 PO 00000 Frm 00109 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\091610\58251.000 HJUD1 PsN: 58251
106 

nologies reduce, even eliminate the need for intermediaries, lowering transaction costs and allowing producers to sell directly to 

consumers or consumers to sell to each other, turning them into 

producers. 

The reduction in costs is a result of economic efficiency, and it 

triggers a battle royal over the rents that have existed in physical 

markets. Incumbent middlemen try to defend their brand, while 

dominant platform owners seek to capture the savings as excess 

profit. But the reduction in costs in a competitive market would 

and should be passed to the consumers. 

A number of recommendations flow from this analysis. Because 

the numbers are so small in these platforms, we must make sure 

that we get the maximum number of competitors possible, the maximum number that the minimum efficient scale will support. 

Antitrust and competition authorities must act swiftly against 

artificial barriers to entry. Make no mistake about it. These markets tend toward compatibility and interoperability, and it is only 

by building artificial barriers to interoperability that these markets 

can be segmented. 

We should value the potential of intermodal and potential competition. But we cannot assume that competition across modes will 

be effective. It has to be demonstrated. We certainly should not 

allow intermodal competitors to be gobbled up by intermodal incumbents. We should scrutinize the abuse of vertical leverage and 

focus on the key chokepoint in these industries where the flow of 

innovation, applications, goods and services can be controlled. 

Claims of technological innovation should be scrutinized. We 

should maximize consumer sovereignty and welfare again. We 

should act swiftly against artificial switching costs and support 

policies to lower switching costs. We should recognize the anticompetitive and anti-consumer arms of bundling. 

We should resist calls from disintermediated incumbents to save 

their antiquated oligopoly business model. We should promote 

transparency, but recognize that the extremely complex nature of 

digital technologies creates a severe problem of information asymmetry. 

Digital markets will be a powerful and consumer friendly space 

if we adhere to the principles of vigorous competition and openness 

that has been the cornerstone for antitrust and competition policy 

in this Nation for well over a century. Thank you. 

[The prepared statement of Mr. Cooper follows:] 

107 

PREPARED STATEMENT OF MARK N. COOPER


MC-1.eps
108 


MC-2.eps
109 


MC-3.eps
110 


MC-4.eps
111 


MC-5.eps
112 


MC-6.eps
113 


MC-7.eps
114 


MC-8.eps
115 


MC-9.eps
116 


MC-10.eps
117 


MC-11.eps
118 


MC-12.eps
119 


MC-13.eps
120 


MC-14.eps
121 


MC-15.eps
122 


MC-16.eps
123 


MC-17.eps
124 


MC-18.eps
125 


MC-19.eps
126 


MC-20.eps
127 


MC-21.eps
128 


MC-22.eps
129 


MC-23.eps
130 


MC-24.eps
131 


MC-25.eps
132 


MC-26.eps
133 


MC-27.eps
134 


MC-28.eps
135 


MC-29.eps
136 


MC-30.eps
137 


MC-31.eps
138 


MC-32.eps
139 

Mr. JOHNSON. Thank you, Dr. Cooper. 

Now we will begin with questions. Wired magazine reported this 

summer in an article entitled ‘‘The Web is Dead: Long Live the 

Internet.’’ Two decades after its birth, the World Wide Web is in 

decline as simpler, sleeker services—think apps—are less about the 

searching and more about the getting. 


MC-33.eps
140 

You wake up and you check your e-mail at your bedside with 

your iPad. That is one app. During breakfast you browse Facebook, 

Twitter and the New York Times—three more apps. On the way 

to the office you listen to a podcast on your smartphone—another 

app. At work you scroll through RSS feeds in a reader and have 

Skype and IM conversations—more apps. 

At the end of the day you come home, make dinner while listening to Pandora. You play some games on X-box Live and watch a 

movie on Netflix streaming video service. You spent the day on the 

Internet, but not on the Web. 

Mr. Feinstein, how do you antitrust regulators stay up to speed 

on the brisk pace of innovation when the consumers do not even 

realize that they are not actually on the Web most of the day. How 

do you rise to that technological challenge? 

Mr. FEINSTEIN. You have correctly characterized it, of course, as 

a challenge. You know, the dynamism of these markets is often operating to the benefit of consumers, and it is the basis, I think, for 

us to try to find the right balance between appropriately aggressive 

antitrust enforcement and while remaining mindful of the benefits 

of innovation. 

And frankly, corporate antitrust enforcement is entirely consistent, I think, with vigorous innovation. And we try to take—we 

try to take all of that into account. 

One of the advantages, I suppose, to us of the explosion of the 

information economy, information-based marketplace that we are 

talking about, the technological, all the different ways of sending 

and receiving information, is that businesses and consumers who 

have concerns and who feel like they may be aggrieved or that they 

may be foreclosed from the market or their ability to compete may 

in some way be impaired, also are able to reach us in real time. 

So it is a constant challenge between wanting to find that balance between, frankly, astounding progress on the one hand, promoting innovation and ensuring that competition continues to 

serve the interests of consumers by promoting innovation and by 

promoting competition on the merits. 

Our case against Intel, for example, which I mentioned in my 

opening remarks, I think in some ways illustrates many of those 

principles, because our real concern there was a dominant firm— 

as we, at least as we alleged it, it was a dominant firm—that had 

had tremendous success and had been very innovative, but had 

also gotten to a point where it, in our view, was not necessarily 

confining itself to competition on the merits. 

And the consent order that is now being considered to be made 

final by the commission is intended to find the balance between 

prohibiting past conduct that we believe constituted something 

other than competition on the merits, while at the same time fostering innovation and full competitive conduct going forward. 

And interestingly, I mean, the very fact of the settlement of that 

case 6 or 7 months after it was voted out by the commission I think 

is a good illustration of our ability to be effective in real time, or 

at least what may constitute real time for antitrust enforcement. 

When the settlement was being discussed, you know, one of the 

issues was we could litigate this matter for 3 or 4 more years. By 

the time it had gone through Courts of Appeals, et cetera, it could 

141 

easily have been 3 years before we had a final decision, and we 

might have one, but it also might have been the case that the market had in some sense moved on, and relief that was obtained 3 

years from now when a final judgment might be an interesting 

legal precedent, but might not necessarily have had immediate impact in the markets. 

By settling the case when we did, I think we achieved the goals 

of obtaining relief in real time and promoting competition and innovation in a dynamic market. That is just an example. 

Mr. JOHNSON. Thank you. 

It is my understanding that one of the reasons that makes it so 

tough to challenge vertical mergers is the difficulty in predicting 

future harms. Does that leave the FTC and DOJ one step behind 

in preventing harmful monopolistic behavior? And this is a question for the panel, so anyone, feel free to—— 

Mr. CLELAND. The real reason vertical merger enforcement is difficult is there is no court case precedent that anybody can point to 

that says, okay, we have got the authority to do here, and we can 

win. So it is the absence of that. And so prosecutors are going, boy, 

you know, we don’t have a precedent, so it tends to want them to 

settle. 

However, you know, what we have seen with, you know, vertical 

mergers is what is different about Google than Microsoft? The Department of Justice stopped the Intuit merger. They didn’t allow 

them to get into finance, financial services. And then they sued 

Netscape when they tried to leverage into the Internet. 

What is different about Google is not only do they have a horizontal monopoly, but they are moving vertically in so many sectors, 

we can just run through them, you know, in video, in books, in 

news and in maps, and just on down the line, and travel. They are 

very rapidly going into the rest of the digital economy. 

And so what is different about Google on the vertical question is 

we have never seen anybody go from 0 to 60 into vertical from a 

horizontal monopoly. That is what is unique here and why it makes 

it so urgent for people to tune in and figure out the damage. 

Mr. JOHNSON. And court decisions being a guide in this kind of 

rapidly evolving market is certainly problematic. But then I think 

it goes into this ignorance Professor—excuse me—Mr. Manne, that 

you spoke of. And when I say ignorance, and I am sure when you 

say it, it is not derogatory. It is just a basic lack of knowledge, particularly when we are talking about future technology. 

Mr. MANNE. Right. 

Mr. JOHNSON. Would you respond? 

Mr. MANNE. Please—yes, thank you. 

Right. Precisely. It is the central problem is the fact that that 

would look—that aggressive competition that could potentially be 

anticompetitive could also be pro-competitive. And the state of economic science is such that we actually don’t have great tools for determining what the future speculative anti-or pro-competitive consequences of a particular business conduct are going to be. 

And that is the reason why I focused in my original remarks on 

the decision-making process. Given that we have this dramatic 

amount of uncertainty, what we are forced to do is look at the potential cost of over enforcement multiplied by the likelihood of over 

142 

enforcement times the potential compared to the potential costs of 

under enforcement and the likelihood of under enforcement and figure out where the advantages and disadvantages lie. 

And I think there is in fact a thumb on the scale in favor of what 

some would call under enforcement, because market competitive 

forces do have the mitigating effect on potentially anticompetitive 

outcome. I think when it comes to vertical integration in particular, 

we actually have an enormous—— 

I don’t mean to imply that economics hasn’t made any progress. 

In fact, we have a lot of economic knowledge. Scott mentioned the 

dearth of court cases that would support the kind of vertical case 

that he might like to bring. 

The reason for that is because the economic literature is almost 

unanimous, and there are very few areas in economics that are set 

up as well settled—not to say completely settled, but is well settled—as the notion that vertical integration tends to be pro-competitive, and the anticompetitive complaints about vertical integration have tended not to materialize. 

I don’t see any reason why that would be different here than it 

has been since the beginning of the Sherman Antitrust Act. And 

simply pointing out that the sky is falling, that there is vertical integration run rampant, that there are network effects, chokepoints, 

privacy fears, exclusive deals, standards, artificial bundling, 

leveraging dominance, vertical leverage, switching costs, information asymmetry—these are all slogans. 

Most of them have very little economic content that would support antitrust intervention on the basis of those concepts. That is 

unfortunately the state of our economic knowledge. Maybe we will 

find out in the future that these things really are as problematic 

as the people who throw those slogans around think they are. At 

the moment we don’t have that knowledge. 

Mr. COOPER. Obviously, I have a rather different view. And those 

slogans in the documents I provided were footnotes from antitrust 

cases that the Department of Justice won. So let us be clear. 

The simple fact of the matter is that the Microsoft case was a 

slam dunk. They did all that stuff, and the courts could see it. The 

Intel case was a slam dunk. They did those things, and not only 

did the American antitrust authorities, but the Japanese and the 

Koreans and the Europeans found the same thing. 

The notion that antitrust can’t identify anticompetitive practices 

is bunk. The notion that false positives are more costly than false 

negatives is a little bit silly in the light of the financial market 

meltdown, the salmonella egg problems, the oil leak in the Gulf, 

the brownouts in California, and the tech bust after the WorldCom 

fraud. 

The assumption that these corporations will behave themselves, 

and the admission of Alan Greenspan at the height of the financial 

crisis that his theory was flawed, simply reverses the assumption 

that we can trust the corporations to do the right thing, because 

their private interests are synonymous with the public interest. 

So the point of the antitrust laws are—and they carry a heavy 

burden, but they have been able to show in a series of landmark 

cases that all those practices I mentioned are in fact used and 

abused in the digital marketplace. And when they put together a 

143 

good case, they win those cases. And they should not back off. They 

should use those principles and apply those principles to the digital 

industry just as vigorously as they have applied them to other sectors in the Industrial Age. 

Mr. BLACK. Mr. Chairman, if I could weigh in on this a little bit, 

first of all, there was some discussion of the courts. And I think 

one of the problems in antitrust law is the last couple of decades 

the courts have not been terribly friendly to antitrust. And it has 

hampered the ability, I think, of enforcers to use some of the tools 

that might be available and, frankly, created the climate that has 

in some cases encouraged anticompetitive behavior by the private 

sector. 

In terms of vertical and horizontal in the high-tech industry, 

however, I constantly am a little frustrated by the terminology, because the truth is if you look at the companies and the way they 

operate, it is not just horizontal and vertical, but the interconnections, the relationships, the dependencies they need to cooperate, 

collaborate, interoperate, it doesn’t line up that simply at all. 

And aside from the Google paranoia issues that seem to have 

crowded in here, in general we have a hugely competitive marketplace in the Internet space. 

Now, I represent hardware, software, services, a lot of people in 

the high-tech world. The Internet space is the most competitive 

part. In some of the hardware areas, some of the software areas, 

you do have these chokepoints. You have locked-in situations. One 

of the key ingredients in whether market share is something you 

worry about in the context of monopoly has to do with how embedded it is, how real market power it has in antitrust terminology. 

Market share is not the equivalent. I think my friend, Scott 

Cleland, talks about Google has 80 percent share in the video monopoly. Well, the data he cites, his comp score, using the same 

data, it shows that other competitors have 197 percent share. So 

the data in this world can be manipulated and misused, I think, 

inappropriately. 

I make one other last reference over to, again, Scott because I 

read his testimony before I came here, and I went on to Google 

Search the other day on Tuesday afternoon, and I put in ‘‘mapping 

direction.’’ And the results I got were one, number one, MapQuest; 

number two, Yahoo maps; and number three, Google. So if there 

is a biasing going on, it is hard to see it in that. 

So a lot of what we talk about in the Internet space—remember, 

people are not exclusive users. So I can use a Blackberry and an 

iPhone. There is a lot of dynamic activity that is going on. 

We have been involved in IBM, Intel, AT&T, Microsoft antitrust 

cases—on the side of stopping major company anticompetitive behavior. If Google or other people become a threat, anticompetitive 

threats to what I think is a tremendous industry, I am going to be 

there. It is not there. 

I have had several presentations made to me when DoubleClick 

and AdMob, et cetera, and if you really get in and understand the 

nature of the industry and the ability of new entrants to come, the 

ability to click and get away from a Google or a Yahoo or a Microsoft or somebody else, it is not yet, and I am not sure it will be 

in a situation that you have a real stifling of any real competition. 

144 

The barriers to entry just aren’t there. They are too easy to have 

one new, dynamic company. Facebook has just taken over the leadership of the number of people who visit it over Google. I mean, 

that happened within a period over a year or two. So the dynamic 

of our part of the industry is great. 

But look for lock-in, look for chokepoint, look for people who undertake policies to try to prevent people from leaving the site, to 

block interoperability, to use intellectual property in an anticompetitive way. Those are the signposts, the signals that you have 

got a company who is thinking anticompetitively and probably will 

wind up acting that way. 

Mr. JOHNSON. Thank you, sir. 

Mr. Reed? 

Mr. ISSA. Mr. Chairman, can I ask how long we are going to go 

on in one round of regular order? I appreciate everyone answering, 

but we have been almost 20 minutes on your time. 

Mr. JOHNSON. Well, I am going to have no further questions. I 

did think it was important enough to hear from the panelists who 

wanted to respond. And I do know we have got votes coming up 

in about 10 or 15 minutes or so, too, so I was thinking we would 

recess for our votes and then come back and resume the questioning. 

Mr. ISSA. Thank you, Mr. Chairman. 

Mr. JOHNSON. And certainly, when I eat, I like everyone else to 

eat, too—even as much as I do—will. 

Mr. CONYERS. Mr. Chairman, I would recommend that our 

friend, Darrell Issa, be allowed, if he chooses, as much time as you 

have had. [Laughter.] 

Well, and then, Mr. Issa is usually quite economical with his 

time, being a great businessman. Actually, I am hoping that some 

of the questions, or the question that I have asked, will kind of 

narrow the field a little bit so that we won’t have to have 20, 25 

minutes of questions, but—— 

Mr. ISSA. Thank you both, Mr. Chairman. 

Mr. JOHNSON. Thank you. 

Mr. REED. I promise to keep my comments very short. It was a 

great discussion here between the academic and the practical and 

the rest, and I learned a lot about antitrust there. But one of the 

things that I thought was interesting about Mr. Black’s comments 

about the ability to innovate on the Internet, and I go back to the 

line from ‘‘The President’s Men’’—follow the money. 

So as we have this discussion about all the slogans that we heard 

from Professor Manne and Mark Cooper’s testimony about what it 

all means, I think when you ask the question of is the Internet dynamic, it certainly is. But you ought to look at how it is getting 

paid. And then that brings us to the interesting question about the 

MapQuest point. 

Mr. Black brought up the point that he searched for the words 

‘‘mapping direction.’’ Now, I don’t know if those were words that 

the first results he saw were they paid for words or they were the 

words that came in Search. It doesn’t matter. But most of us when 

we search, we actually search for the address we are going for. And 

the interesting about the ad word is that is what gets us into how 

do we pay for the Internet. 

145 

So I certainly don’t have the expertise of the antitrust lawyers 

here at the table, but I do know that my members, the development community, we follow the money. 

Mr. JOHNSON. Thank you. 

Now I will turn to Mr. Coble for questions. 

Mr. COBLE. Mr. Chairman, thank you again for your earlier courtesy to permit me to go to the dermatologist. When I got over there, 

I was sort of hoping you had declined my request, but it worked 

out okay. 

Mr. JOHNSON. Well, I am hoping that my graciousness to you will 

inure to my benefit in the eyes of Mr. Issa as well. [Laughter.] 

Mr. COBLE. Yes, I don’t want to be in Mr. Issa’s doghouse. 

But it is good to have the panel of witnesses before us as well. 

Mr. Feinstein, to what extent, if any, do the antitrust agencies 

take into account patents, trademarks and copyright claims into 

their antitrust analysis of transactions and conduct (a), and do privacy concerns ever factor into an antitrust analysis, or does the 

agency look at IP and privacy concerns as distinct issues separate 

and apart from their antitrust analysis? 

Mr. FEINSTEIN. Let me address that in two parts, since the question was posed in two parts. 

Mr. COBLE. Sure. 

Mr. FEINSTEIN. Focusing first on patents and intellectual property, that portion of the question, we absolutely take that into account in our antitrust analysis, and it cuts across a great deal of 

what we do. It is obviously paramount in the pharmaceutical sector, and it is very important in this sector as well. 

And as I mentioned in my earlier remarks, you know, we perceive—I perceive, and I am only speaking for myself here, I guess, 

but I perceive the goals of, you know, the patent laws and the goals 

of the antitrust laws to be fundamentally consistent, which is to 

stimulate innovation and to stimulate competition. 

And one of the ways that the patent laws do that, of course, is 

to provide a period of exclusivity. That doesn’t necessarily equate 

to a monopoly in antitrust terms, because there can be another patented product or process that competes. But there is also an endpoint to that exclusivity, and that in itself stimulates further innovation, if the system is working properly. But we definitely take 

those things into account. 

Mr. COBLE. Okay, right. 

Mr. FEINSTEIN. Now, with respect to privacy, I am going to focus 

on that really from the antitrust perspective rather than from the 

consumer protection perspective. That is a different bureau of our 

commission, and, you know, there are a lot of initiatives under way 

regarding the general question of privacy, particularly with respect 

to the Internet, but I am going to give a narrower response, which 

is the relationship between privacy and antitrust. 

And candidly, I think it is a relatively limited relationship. It is 

certainly not—it is important, but if there were, for example, in a 

proposed merger between two firms that competed on a number of 

levels, and one of the levels in which they competed were their approaches to privacy—Firm A offered certain safeguards regarding 

consumer privacy; Firm B offered a different set of safeguards, and 

they were competing with each other not just in terms of price but 

146 

this sort of non-price competition regarding their approach to privacy—if they were merging, and that degree of competition were 

being eliminated, I think it would be relevant for us to consider 

that. 

Mr. COBLE. Okay. Thank you, sir. 

Mr. Manne, the pace of innovation is rapidly accelerating. Companies that invest in innovation succeed; those that do not often 

fall behind. Is it a disincentive to innovation if government legal 

systems, particularly in Europe, force companies that make often 

risky initial investments to hand over their innovations to competitors, who oftentimes choose not to invest? 

Mr. MANNE. I think the short answer is yes. I think that the risk 

of compulsory licensing and other sorts of activities that might 

force companies that have innovated and invested enormous 

amounts in developing intellectual capital to share that intellectual 

capital with their competitors is—does an enormous disservice to 

innovation. I think we have seen that with respect to Microsoft and 

other companies in Europe, as you pointed out. 

I think that this follows on your question to Rich—to Mr. Feinstein about the consideration of intellectual property in antitrust. 

Fundamentally, the area in which this problem arises is where 

there is intellectual property and as a remedy or through the 

course of some sort of enforcement action, the company is required 

to share its intellectual property with another company. 

And I think that it is probably a core problem that intellectual 

property is an essential part of the incentivizing of innovation, and 

the forced sharing of that with competitors can only diminish that 

incentive. 

Mr. COBLE. Thank you, sir. 

Mr. Chairman, I see the red light, but I have one brief question 

additionally. 

Mr. JOHNSON. Certainly. 

Mr. COBLE. Mr. Reed, is ACT supportive of quality control measures in app stores like Apple’s that can be used to eliminate applications that use pirated intellectual property? 

Mr. REED. I think I got the last of it, but absolutely our membership has no problem with quality controls in application stores that 

help provide a better platform. 

For those of you who have played with an iPhone or have seen 

the Droid or some of the new technologies, the user interface, how 

you interact with it is key. I mean, let us face it. It has got a huge 

cool factor. We have all seen it on the television ads. The way that 

they reach out to people is about saying, look, this is a product that 

you integrate into your life. 

What you don’t want to integrate into your life is something that 

loses its battery, breaks, crashes, won’t make a phone call. So absolutely our membership understands that there is some benefit, 

some huge benefit for their ability to reach customers, if the customers have a sense of comfort that the machine will continue to 

provide great things you can integrate into your life, but also can 

make a phone call. 

Mr. COBLE. I thank you. 

Thank you, Mr. Chairman. I yield back. 

Mr. JOHNSON. Thank you. 

147 

And I will now turn to the speaker—excuse me, the Chairman 

of the Committee, Mr. John Conyers. 

Mr. CONYERS. Thank you. 

Mr. Morgan Reed, you told us that there were several critical 

issues on the horizon and that you hope the Committee would attend to them. What are they? 

Mr. REED. Well, as we talked, the big issue of the table, of 

course, is a question about what will happen with Google’s purchase of ITA. There are some smaller companies that are involved—Kayak. Although it has some risk-taking backers, it is a 

small company based in Connecticut with about, I think, 90 employees. It is small. There is Mobissimo. 

So there are several mobile apps makers, who are concerned 

about what the outcome of the ITA merger means for them. Kayak 

has been incredibly successful and growing fast, so obviously they 

have some concerns. 

I think the other areas that we touched on a little bit with Mr. 

Coble is making sure that we have protection for intellectual property as we move forward. Even within the antitrust realm, IP is 

absolutely essential to small tech companies. 

One of the best ways that IP is valuable to us is we get bought. 

I mean, in one sense I am happy for the ITA folks, because they 

have a chance to get money and buy themselves a sailboat. And unfortunately, most entrepreneurs don’t retire. But on the other 

hand, that only floats from the patents and intellectual property 

that they have. So as we move forward, I think we need to remember that IP protection is critical. And so we are concerned about 

that. 

And then last, but not least, we do worry a little bit about copyright in the sense that for our membership, especially those who 

do paid applications, copyright is their stock in trade—that plus 

trade secrets. But a lot of times we are writing applications for others, who create their own content—the New York Times, Washington Post or HufPo, Wall Street Journal. They all have content 

on the Web. 

Now, they are brilliant reporters, but I have yet to meet a reporter who is an amazing programmer. So the programmers hire 

us to write the applications for them. So long as the content industry is able to make a living and so long as their content is protected, I have an opportunity to get a job to write the application 

that goes on the iPhone or the Android or the Windows Phone 7. 

So absolutely, we have a symbiotic relationship with the copyright industry, because we want to facilitate their access to users. 

Mr. CONYERS. Do others have—— 

Mr. Black, you wanted to add to this discussion. 

Mr. BLACK. Yes, I would love to weigh in on that, because intellectual property for all my members, from hardware, software, 

services, is something they all value—patents, copyright, trademark. At the same time, we have come to understand that as important as IP is, when we deal in the competition space, it is very 

critical to respect the boundaries of IP. 

IP does not—should not trump competition policy, as I think the 

FTC made clear. The goal of both is to help promote innovation, 

so it is worth doing an analysis of the way in which in the modern, 

148 

very changing and dynamic Internet space, the way in which copyrights and patents are in fact being used. 

The Congress has, and your Committee last Congress passed an 

excellent patent reform legislation, which I think recognized that 

as important as patents are, the system can nevertheless malfunction. We have similar malfunctions going on with the way the copyright system operates. 

So it is very important to respect IP, but we need to recalibrate 

how it operates in a very dynamic, changing space. And I think 

that is actually—and many of those issues really do touch on the 

borderline of competition policy. And we haven’t, I don’t think, 

frankly, grappled with it very well at all. 

Mr. CONYERS. Scott Cleland? 

Mr. CLELAND. Markets—free markets—can’t operate without 

really good property rights. And, you know, competition needs 

property rights and people respecting them for it to work. And 

every now and then a bad actor comes along and uses innovation 

as a shield. Google says innovation without permission. 

Well, what you have got is let us do a real quick review. Twelve 

million books were copied illegally in the Google book settlement, 

and they are being sued by the publisher. Viacom sued Google 

YouTube for hundreds of thousands of videos that were copyright 

violations. Apple is suing HTC Google over the iPhone. Oracle is 

suing Google over their patents for the Android. Rosetta Stone is 

soothing them over trademark. 

There is a bad actor out there that is looking and not using intellectual property rights like other people, just like they do in privacy. So privacy and intellectual property can be anticompetitive in 

the hands of a bad actor, who is a serial offender of intellectual 

property rights or privacy. 

Mr. CONYERS. Mark Cooper? 

Mr. COOPER. Mr. Conyers, I want to go to an example that has 

been mentioned three or four times, which is the newspaper industry. And this is why you really do have to look hard at the facts 

as opposed to the slogan. 

If you look at the newspaper industry, 60 percent of their lost 

revenue is in classified—that is, Craigslist, monster.com, E-bay as 

a two-sided market where people sell used things. Another 20 percent of their revenue has been lost to cable operators and to weekly 

journals. 

The overwhelming majority of their lost revenue is to more efficient advertisers, more efficient people who create audiences more 

efficiently than the newspapers do. It has nothing to do with the 

stealing or of copyrighted content. It has to do with the creation in 

digital space of entities that can more efficiently aggregate audiences. 

And so I agree that we need a balanced view of copyright and 

intellectual property, but to suggest that copyright cannot get out 

of hand, that patents cannot become anticompetitive goes too far in 

the wrong direction. And if we look at each of these industries, look 

at the facts, and newspapers is the most important one, we will 

discover a much more complex and nuanced reality. 

Mr. CONYERS. Edward Black, is there any therapy for this antiGoogle sentiment that we are hearing so much about this morning? 

149 

Mr. BLACK. Well, the world that is created by the Google—I 

mean, I just wish there—I mean, if Google came up with a cure for 

cancer, I am sure Scott would find a reason that that is bad for society. 

Mr. CONYERS. He shook his head. He would not. 

Mr. BLACK. Yes. It is just our world is so much more complex. 

We have so many competitors, so many companies. The kind of behavior, again, that we have seen in all of the major antitrust cases 

that were important to our industry showed an inclination to lock 

people in, to block interoperability, to prevent openness. Those are 

all things that are, frankly, contrary to the way Google is operated. 

Do they have a presence that is big? Do they have a great reputation that people would love to tear down? Yes. And that gives 

them some real presence. But I consider it very fragile and in that 

sense is not established and locked in the way that IBM hardware, 

the way Intel on chips, the way Microsoft in operating systems 

have built that strength. It just does not present the image that— 

I mean, I feel like I am Lewis Carroll, Alice in Wonderland when 

I hear the Internet described by some people. It just isn’t the way 

the Internet is operated. 

Mr. CONYERS. Well, Director Feinstein, Scott Cleland has called 

off several lists of offenses and invited us to consider prosecuting. 

Doesn’t this have any effect on the way you look at the situation 

with Google? 

Mr. FEINSTEIN. Well, we are certainly very much aware of 

Google’s presence in many markets that are the subject of this 

hearing today. With respect to the ITA matter in particular, that 

is the one that I think it is a matter of public record that is being 

looked at by the Justice Department, so it wouldn’t be appropriate 

for me to get into that specifically. 

I did, of course, touch on our investigation and ultimate decision 

not to challenge the Google-AdMob transaction earlier this year. 

But so just taking a step back, and I don’t view it as, frankly, our 

role to sort of be focused on bashing any particular company; our 

role is to promote competition for the benefit of consumers and to 

address clogs on competition where we find them, but, you know, 

if you sort of take a step back, for better or for worse, you know, 

what we have seen with Google over the last decade is, you know, 

kind of a textbook example of what this whole hearing is about. 

You know, we have gone from a couple of guys in a garage, so 

to speak, which somebody alluded to earlier, to, you know, a firm 

that is now the target of a lot of challenges and a lot of investigations. And that is perhaps, you know, a very compelling example 

of how things can change quickly. 

Now, when we are doing an investigation, you know, we have— 

and, of course, we try to act quickly, because things develop in, you 

know, almost literally in real time; that happened in our GoogleAdMob matter—but we do have the advantage of not just sort of 

observing from the outside. 

We have the ability to get into the company’s internal decisionmaking. We have the ability to review their documents and to put 

their people under oath and try to understand what their incentives are, what their ability to act on those incentives may be to 

the extent that they may have anticompetitive goals in mind. 

150 

And that doesn’t mean we are always right 100 percent of the 

time, but we do have at least the ability, I think, to as quickly as 

we can come up to speed from a variety of viewpoints. 

Mr. CONYERS. Well, Mr. Chairman, this is the first of a series of 

hearings. Somewhere along the line we are going to have to consider the wave of mergers that have become a pattern in our economy for the last two decades at least. And that has some significance and importance about it. I want to put that on the table. 

And don’t you feel, Mr. Director, that the loss of privacy—we are 

now subject to an incredible array of invasions of everybody, not 

just citizens, but government alike. Does this present some new 

challenge that we have got to get our arms around? 

Mr. FEINSTEIN. I absolutely agree with you that the value of privacy is paramount, and it is an issue that the commission is grappling with as we speak. 

But it is being done primarily from a consumer protection standpoint rather than specifically the antitrust perspective. They are 

not mutually exclusive, as I explained in one of my earlier answers, 

but that is an issue that the commission as a whole and certainly 

the director Of the Bureau of Consumer Protection are thinking 

about very hard. 

And they have also brought a number of actions, I think, to challenge the misuse of information that was supposed to be kept private. But it absolutely is a very important issue for the FTC. 

Mr. CONYERS. Mark Cooper? 

Mr. COOPER. Mr. Chairman, I want to reinforce the two points 

that the director has made. First, privacy is a tremendously important issue, very much a digital age issue, because digital technologies allow for gathering, aggregation and processing of a massive amount of information. 

But second of all, it really isn’t an antitrust issue. And there are 

differences of opinion about this, but if you try and do privacy in 

these merger cases as an antitrust issue, you confront the problem 

that the natural solution to a competitive advantage gained by having a lot of personal information would be to share it. I mean, that 

is the solution we frequently give about most favored nation access 

to whatever asset is—we think is—rendering a competitive advantage to a dominant firm. 

And so the simple fact of the matter is that when you play out 

the remedy for privacy problems in the context of mergers and 

antitrust, I think you end up in the wrong place. So that means 

it is even more important for the agency to deal with privacy as 

a consumer protection issue. And it has been languishing for a decade, and it is now clear the public want it. It is time to do it, and 

now is the time to move forward on the privacy issue. 

Mr. JOHNSON. Thank you. 

Mr. ISSA. Mr. Chairman, due to the hour, I would ask that I tee 

up a thought and then we set a time to come back, if that is okay 

with the Chairman. 

Mr. JOHNSON. Mr. Issa is normally not high maintenance. 

[Laughter.] 

Mr. ISSA. I will be incredibly low maintenance. 

Mr. Chairman, I would only say that when we return, my line 

of questioning will beg all these witnesses—will they tell us not 

151 

that we should have inaction, but among the various actions we 

could take on antitrust, intellectual property reform and the like, 

which ones we should begin looking at on a bipartisan basis? Because I think we all recognize that they disagree maybe on some 

parts of the problem, but our jurisdiction is not to second-guess 

antitrust. Our jurisdiction is to write antitrust law. Our jurisdiction is to write IP law. 

So I am hoping that becomes the subject that they are prepared 

to answer when we get back—and after you have enjoyed your 

lunch. 

Mr. JOHNSON. Well, your segue is quite creative. 

Mr. ISSA. Thank you, Mr. Chairman. 

Mr. JOHNSON. No need for an opening statement, then, for you. 

[Laughter.] 

You will just come back and ask questions. 

Mr. ISSA. You got it. 

Mr. JOHNSON. All right. Thank you, sir. 

We have got three votes, and it will take us about 15, 20 minutes 

to go vote, come back over. 

Mr. ISSA. 12:30? 

Mr. JOHNSON. And Mr. Issa is trying to take a lunch break on 

us. [Laughter.] 

I don’t think we are going to—— 

Mr. ISSA. I will come sooner, if you do, Mr. Chairman. 

Mr. JOHNSON. Yes, I think we will come right back after votes 

and let the witnesses—they don’t need that much time to respond. 

I think we can—— 

Mr. ISSA. Mr. Chairman, you don’t know how long the lunch hour 

wait is when they try to get something in our cafeteria. 

Mr. JOHNSON. Well, we want to try to get them out before the 

cafeteria closes. [Laughter.] 

Thank you. We will recess and be right back. 

[Recess.] 

Mr. JOHNSON. All right. We will go back into session now. 

And, Mr. Issa? 

Mr. ISSA. Thank you, Mr. Chairman. 

I hope my questions were worth waiting for. Or as Henry Kissinger said during the height of Watergate, I hope you have questions for my answers. As I go down the list, let us start with our 

regulator here. 

Mr. Feinstein, do you today believe you have the tools you need, 

no matter what the market unfairness is. In other words do you 

have solutions for each problem? Even if you don’t accept some of 

the problems here today, if they become problems, do you have the 

tools? 

Mr. FEINSTEIN. The short answer to that question, sir, is yes, we 

believe we do. The thrust of the commission’s testimony today is 

that the antitrust laws are written sufficiently flexibly to enable us 

to address competitive problems in dynamic markets, and we think 

that our track record is consistent with that. 

Mr. ISSA. Is the Hart-Scott-Rodino process broad enough in what 

it envisions and what you get to interpret to deal with some of the 

problems here today, if you believed in the future, let us say based 

on various experience, we allow something through and then in retVerDate Aug 31 2005 09:38 Mar 01, 2011 Jkt 000000 PO 00000 Frm 00155 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\091610\58251.000 HJUD1 PsN: 58251
152 

rospect say that wasn’t a good idea? Will you have the flexibility 

to make those decisions differently than the past? Because for a 

long time, I think we all agree it has been fairly pro forma unless 

a company was sort of on the front page and another company on 

the front page were suing them. 

Mr. FEINSTEIN. Are you asking if the Hart-Scott-Rodino process 

itself is sufficient? I just want to make sure I am clear on the question. 

Mr. ISSA. You know, as I said before the break, I want to talk 

about statutory tools that we are giving you, the things that are 

purely within this Committee, not the judgment of whether you all 

are doing a good job or whether there is an emerging, but do you 

have the tools? So that was why I chose that, having gone through 

the process in my own company several times. 

Mr. FEINSTEIN. Sure. Well, as you know, that process is a premerger notification obligation with respect to deals of a certain size 

between parties of a certain size. And, you know, from time to time 

there have been adjustments to some of the thresholds of reportability. But as a general proposition, I think that system is working 

pretty well. 

We are in the process right now of making some adjustments to 

sort of—we propose some adjustments to the types of information 

that would be produced, and we are trying to in some respects 

streamline the reporting process and also make sure that we are 

getting what we need. 

Now, there are, of course, transactions that for one reason or another aren’t reportable, and sometimes those are investigated and 

challenged after they have been consummated. 

And then, of course, there is the whole body of antitrust law that 

applies to conduct matters rather than mergers at all, such as the 

Intel case, which is necessarily somewhat less forward-looking, because the conduct has already occurred. 

With mergers, of course, if it is a non-consummated merger, you 

are trying to make a prediction about the likely competitive effects. 

Mr. ISSA. Okay. And I would say that organic growth, nobody in 

the dais is going to fault you for the fact that it is a slow process 

to determine the threshold where mergers—it is a pending question, and hopefully, it is answered in a timely fashion. 

Let me go through the intellectual property, which all of you 

touched on to a greater or lesser extent. This body sets not just 

what is protectable, but we set timelines. A few years before I 

came, the wisdom of this organization was to retroactively extend 

both patents that were in process when they went from 17 to 20. 

They actually added a year, year and a half to some patents retroactively, and people had to pay for them. 

We made Mickey Mouse not expire, even though it was decades 

old—black-and-white Mickey Mouse, by the way, not expire. So we 

have retroactively given value by lengthening IP. Do you today, as 

my core question for all of you—which won’t take more than 20 

minutes, Mr. Chairman, to answer—— 

Do you believe that we should look at—— 

Mr. JOHNSON. So noted. 

Mr. ISSA. Thank you, Mr. Chairman. 

153 

Do you think we should change or consider changing, on a very 

strategic, well-thought-out basis, certain IP expirations? And a 

good example would be when should DOS 3.0 lose its exclusivity 

of copyright? When should the Linux people be able to look at a 

portfolio of no longer used or abandoned software and bring it into 

their consideration? When should an Apple app stop being—the 

code being pretty to understand, but when in fact could you should 

be able to just grab that code like an icon and throw it into something? 

That is my real question, because I am looking at innovation and 

barriers to entry. And sometimes copyright with a very long time 

to run is one of those barriers that we have the authority to change 

and perhaps speed up innovation. 

I will go right down the list as you see fit. 

Mr. JOHNSON. And, Mr. Issa, you said that the answers would 

not take 20 minutes, but you did not say your question would not 

take 20 minutes. 

Mr. ISSA. Yes, more or less, Mr. Chairman. But that is all for my 

question. 

Mr. JOHNSON. All right. Thank you. 

Mr. FEINSTEIN. I guess I will take the first shot at that, and I 

can promise that this answer will not be 20 minutes. It might not 

even be 20 seconds. 

That strikes me as an area that would be well worth consideration, but I don’t know the answer. And it is not one that the commission certainly has taken a position on formally—that is, whether some of these timeframes should be adjusted. 

But I think you are exactly right that we want to find the right 

balance between stimulating innovation and minimizing entry barriers that stifle future innovation in some sense and also stifle competition. But what the right number might be I don’t know. 

Mr. ISSA. Thank you. 

And, Mr. Black, as I said, I will allow you to say some of your 

members are on one side and some are on another side of the answer. 

Mr. BLACK. Well, in fact, I think there is a pretty broad consensus that the IP laws, which, you know, the same copyright laws 

will cover a song by Lady Gaga and a critically important—— 

Mr. ISSA. Please, use Frank Sinatra. [Laughter.] 

Mr. BLACK [continuing]. Software that runs a—or industry, and, 

yes, so I think some differential treatment. 

And I think when in my testimony I talked about cost-benefit 

analysis of IP, it is exactly that. There is certainly some benefit 

that can come from giving IP rights to promote a certain category 

innovation, but it is somewhat of a zero-sum game. You interfere 

with the market and you interfere, if you will, with free speech on 

the other side when you take a certain kind of activity and say now 

it is protected by IP. 

The copyright terms are frankly, you know, can be over 100 

years easily, which in a world of Internet with documents and 

things going around, it creates litigation tales that can tie up the 

Internet. So I think looking at that is very important. 

Patents same issue—and in patent legislation we have actually 

said that different industries may well need some differential treatVerDate Aug 31 2005 09:38 Mar 01, 2011 Jkt 000000 PO 00000 Frm 00157 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\091610\58251.000 HJUD1 PsN: 58251
154 

ment, because the way the system works in the real world with different industries, for the pharmaceuticals, is very different than 

the way it works for hardware industry. 

So a review of IP law—not to eliminate IP law; it is critical we 

have IP—but to recognize that in a complex world we have made 

one suit try to fit many, many different players. And it is not working well. It is having a lot of anti-innovation and anticompetitive 

impacts. 

Mr. ISSA. Thank you. 

Mr. Reed? 

Mr. REED. Interestingly enough, I think that the question of 

copyright as it applies to software in this instance is a little bit of 

a misnomer because of something that you said. You said when 

should DOS—when should that copyright come up? When is the 

last time anyone has actually used DOS? I mean, that is the interesting part of this question and why patents become very important, but—— 

Mr. ISSA. But my question was not using DOS. A hundred percent of the lines of code, the thought, every part of that, if it were 

open source, any portion of it could be used. 

Mr. REED. Sure. And as somebody who has actually developed on 

some of the—some Linux applications, what is interesting about it 

is what protects you as a developer of software that is not open 

source is actually more of trade secret than true copyright, because 

as we have seen time and time again, you have to do a little bit 

more than change the name of the variable. 

But realistically, you can make something that works alike, run 

alike, functions alike. Anyone who looks at the iPhone apps know 

that there are hundreds of apps that are essentially identical to 

each other. There are so many that in fact it is becoming an area 

of debate. 

So copyright in and of itself is not the strong arm of pushing innovation forward. In fact, it is one of the reasons why we looked 

at—— 

Mr. ISSA [continuing]. The case, then why protect it for 75 years 

beyond the life of the author? 

Mr. REED. I think that the rest of the fundamental structure of 

the copyright industry, and I use the term broadly because it covers so many things—— 

Mr. ISSA. Now, Mr. Black was very quick to say we would have 

to parse it by industries and types of use, which we can do. We are 

funny like that. We have the authority. 

Mr. REED. I am well aware of the jurisdiction of the Committee. 

I think at this point in time I would reserve judgment, because I 

would have to see what the legislation looks like. It is easy to be 

glib and say, ‘‘Sure, we should just chop up the pie in all these 

pieces.’’ But I think we all know the devil will be in the details, 

just as it was in the Mickey Mouse decision, which was an interesting—which is an interesting come about. 

But I think the more important question is something that you 

know a lot about—is that we need to improve the quality of software patents and patents in general for a major reason. 

We know copyright isn’t the strong arm to help us get innovation. But what we know from it is the more that I am protected 

155 

by a quality software patent, the more I can share, the less I have 

to depend on trade secret—and frankly, the less I have to depend 

on the 75-year extension on my copyright. 

So in that sense I think we need to look—we need to look at 

other ways to make sure that software is encouraging—— 

Mr. ISSA. Thank you. 

Mr. Cleland? 

Mr. CLELAND. Yes, I have a very, very strong bias for the Constitution, and the Constitution gives property rights, you know, 

constitutional basis. And so, you know, my view is, you know, respect property rights. And if you are in a gray area, side with property right. That is where the Constitution is, and that has proven 

to work real well. 

I also will add a comment that there are many out there that 

have taken the word ‘‘innovation’’ to mean let us not look at property right. It is a way of kind of getting around property right. 

And there is, you know, the free culture movement of Lawrence 

Lessig and many others, the open source movement, who basically 

think ‘‘I don’t think it should be copyrighted software.’’ I strongly 

disagree with that, because what you are doing is you are creating 

what they say—isn’t information common? 

And that is, you know, as I said in my testimony, that is death 

long-term for economic growth or real innovation, for jobs, for the 

economy, for property. If people go around and say, ‘‘Well, we don’t 

like the Constitution, because it protects property. You know, this 

tech stuff changes everything, and we should just mash it all up 

and remix it and innovate like they do in, you know, in Silicon Valley and those people who have that view.’’ 

So I am very, very suspicious of people that say there shouldn’t 

be any property rights in technology, because it has proven to work 

very, very well. 

Mr. ISSA. As a holder of 37 patents, trust me, I will debate the 

time. I will not debate the right under the Constitution, except on 

your side. 

Mr. Manne? 

Mr. MANNE. Remarkably, I think I agree with everything that 

Scott just said. [Laughter.] 

Mr. ISSA. We can move on to Mr. Cooper. [Laughter.] 

Mr. MANNE. I would say in response to your suggestion about the 

possible tailoring of the length of patents and copyrights in particular industries, please don’t micromanage like that. I think it is 

a political can of worms. Industrial policy rarely worked. I think it 

would be almost inevitably a—a process that would result in an 

outcome that is far worse than intended and far worse than what 

we have now. 

That doesn’t mean that I think that the specific term of patents 

that we have today in copyright is somehow optimal and absolute. 

And it is always worth considering whether we can do better, but 

doing better by tailoring those—those lengths and the various 

terms that go along with them to particular industries, I cannot 

imagine that functioning in the way that we would like to see it 

functioning, if we tried it. 

If you want, you know, a couple of suggestions that I think would 

be feasible to do, that I think would be helpful—— 

156 

Mr. ISSA. Just bear in mind that if you design an original dress, 

you are not even entitled to a patent in America. So we do tailor 

by industries. The French give 3 years. We give zero. 

So one of the challenges is we start off on this side of the dais 

knowing that we have already picked winners and losers in 

lengths. The only question really is are they somehow inherently 

flawed? And if not, we would love to leave them alone as much as 

you would like to. 

Mr. Cooper, you get the last of my 20 minutes. 

Mr. COOPER. Interestingly, the founding fathers hated monopoly, 

and they only granted the Congress the right to create an intellectual property monopoly grudgingly and for a specific purpose. And 

the purpose was intellectual property was supposed to be an incentive to create. It was not supposed to create a monopoly of indolence. And that is the balance that I think you are concerned 

about. 

I would suggest that given the immense fluidity, the huge market created in the digital space, you could be shortening these copyrights. If you have an idea and you cannot produce a stream of income in a shorter period of time, then given this immense opportunity, maybe it is time to put it into the public domain, as Jefferson thought. That is a general idea. 

On the other hand, picking winners and losers and picking timeframes requires a fairly sophisticated analysis of how long it takes 

to invent and recover. I would suggest you might look at other 

issues and help the antitrust authorities by looking at things like 

the holdup problem, the harm and intent of the copyright, how it 

is being used. Author and work—we are struggling to figure out 

author and work in books, and you have made a point that there 

is a—— 

Mr. ISSA. Mr. Cleland noted a rather large lawsuit related to one 

man’s interpretation of author and work. 

Mr. COOPER. Yes, no, and frankly, my suggestion was that the 

folks who were scanning those should have held them back for 5 

years to put pressure on you folks to deal with it, to give the authors time to come out of the woodwork. 

So I would look to ways to sharpen the tool that the antitrust 

authorities have. Of course, we know that mucking with monopoly 

privilege is a very, very dicey business. And the founding fathers 

really did not want to go there. 

Mr. ISSA. Thank you. 

Thank you for your courtesy, Mr. Chairman. This was insightful 

for me, and I hope for the rest of you. Yield back. 

Mr. JOHNSON. Well, thank you, Mr. Issa. And I think it is a intriguing issue that you have raised. Perhaps some would argue 

that it is outside of the scope of competition policy, but I think it 

could be argued that this issue could have some bearing on competition policy. 

Mr. ISSA. Mr. Chairman, if I can note, many years ago I had an 

IndyCar team for my Viper security product, and at that time 

Penske was dominating the field. And the one thing we knew about 

Roger Penske is he sat on the board that did the rules. And whatever gave him an advantage seemed to be within the rules, but not 

157 

evident. And the next year when it was evident, we had a change 

of rules. 

Now, ‘‘majority’’ rules is said a lot around here but, trust me, he 

who writes the rules also rules. So I view competition as are the 

rules understandable? Are they fair? Are they consistent? Can they 

be predicted? And that is why I asked the question. 

My theory is, yes, we may have to change the rules, but if we 

don’t change the rules, then inherently the Federal Trade Commission and the courts will constantly be dealing with how do they 

deal with the side effects if the rules are not promoting innovation 

and limiting monopolistic power inherently? 

All companies, including my own, will seek to be monopoly. They 

will seek to get that premium. They can’t help themselves, because 

it is more profitable to be a monopoly. 

So although you are right, it is outside the general scope of what 

was on today, it is exactly where I think we have to chase the rabbit down the hole to get to the real problem that monopoly building 

is because of the system that allows monopoly building and a profit 

margin that encourages it. And that is where I think you and I can 

really work together in the coming Congress. 

Mr. JOHNSON. Well, I don’t think that we should be afraid to go 

down the hole, as you say, if you are likening it to going down a 

hole. I don’t think we should be afraid of that, and I do think there 

are so many views and so many ways to slice that loaf of bread in 

an intellectual fashion that perhaps we could see value in moving 

forward in that way. So we will take a look at it. 

Of course, the overall issue is probably outside of the scope of 

this Subcommittee, but we butt up against these kinds of intellectual property issues so much in competition policy. 

And so having said that, I will ask for questions now from, if 

there are any, from my colleague, Mr. Gonzalez, from Texas. 

Mr. GONZALEZ. Thank you very much, Mr. Chairman. My apologies to you, my colleagues and to the witnesses. 

Obviously, there is more than just one thing occurring at any one 

time on the Hill, and I was not here for the benefit of your testimony, and so if I cover something that has already been asked or 

you covered in your testimony, again, I apologize. I know my staff 

is here, and they are going to be happy to point that out later after 

my questioning and such. 

But there were some comments made when I was in attendance. 

One of them was, and I am trying—economic content or I don’t 

know if that was economic impact or whatever. Has it reached a 

certain point? What is going on out there in this new world of commerce? 

But it all comes down to the sale of a product or a service and 

innovation and how we do things and how the innovation and technology impact this. My own belief is that we don’t abandon the established principles that have been there for a very, very long time 

and have served us well. 

There are those that believe that technology, today’s technology, 

presents us with a different set of facts that allows us to abandon 

those particular principles. It wasn’t that long ago, as I remember, 

that Microsoft was in fact saying, ‘‘Look, technology as such—let 

158 

the market forces go forward. They are little different than they 

used to be. And you have to accommodate temporary monopolies.’’ 

And that was actually adopted by many individuals. They just 

figured that technology is moving forward at such a pace that that 

would normally happen. Now, I did not subscribe to that—and then 

we have a settlement. 

Let me read you from a New York Times article by Paul 

Krugman, June 6, 2008, in his column, ‘‘In 1994 one of those 

gurus’’—making reference to someone that saw what was developing—‘‘Esther Dyson, made a striking prediction that the ease 

with which digital content can be copied and disseminated would 

eventually force businesses to sell the result of creative activity 

cheaply or even give it away. Whatever the product—software, 

books, music, movies, the cost of creation would have to be recouped indirectly. Business would have to distribute intellectual 

property free in order to sell services and relationships’’—and the 

most striking sentence—‘‘and we will have to find business and economic models that take this reality into account.’’ 

I think that is what all of us are trying to do, and that is to accommodate the changes and such. The interesting thing is, you 

know, where are we? Who are the gatekeepers? How does modern 

commerce really conduct it? And you may say, ‘‘Well, all this is developing. We don’t know exactly.’’ But, I mean, Barnes & Noble will 

tell you. Borders will tell you. Blockbuster will tell you. 

So there has to be something, and it is called profit, and there 

is going to be different ways of being able to do what we always 

did with intellectual property, products, services and such that had 

value. But in this environment it is a little different. 

What will be the economic generators that will represent the 

profit? It is going to be subscriptions. That is one way of doing it. 

But not everyone can plug into a subscription model, where someone basically pays for whatever they are receiving. The other will 

be ad revenue. Ad revenue. And this is not going to be a big 

thing—Google is big and bad and all that thing; they do no evil; 

they do little evil, or whatever. 

The question is why shouldn’t the old principles still apply regardless of innovation and such? And haven’t we already reached 

that critical point where this technology has totally changed the 

way we do business in America? I mean, I know how I shop. It is 

so different. And I am 65, so you can imagine everybody that is 

younger. 

Anybody believe that technology somehow will force us today to 

adopt business models that will abandon the traditional principles 

of monopoly and antitrust? And I want to start with Dr. Cooper. 

Mr. COOPER. There are two pieces to that answer. One piece is 

the business practices that we have observed in a series of cases 

like Microsoft and Intel are the same old nasty business practices 

that Rockefeller and the robber barons were dinged for. The anticompetitive business practices have not changed. 

The new element in a digital industry, and I talk about it in my 

testimony, is the technological lever, that a key platform owner 

has, to undermine potential competitors. That is a new one. Rockefeller could make a deal about rates and disadvantage his competiVerDate Aug 31 2005 09:38 Mar 01, 2011 Jkt 000000 PO 00000 Frm 00162 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\091610\58251.000 HJUD1 PsN: 58251
159 

tors, but he couldn’t muck with the track so his competitors’ cars 

wouldn’t roll. 

Microsoft was able to make using Navigator a jolting experience. 

Comcast was able to undermine the quality of BitTorrent. That 

technological lever requires closer scrutiny. 

But I agree entirely with your basic premise that we have simply 

entered a new age. Old business models—subscription, a la carte 

sales—you did mention the most basic one is one off sale. Most of 

the things in America are bought by a first sale. We buy it and we 

have it. We have got that in music singles these days. We didn’t 

have that 15 years ago. The music industry sold 1.6 billion singles 

last year—humongous potential. So that hasn’t changed. 

What has changed is tremendous reduction in transaction costs, 

tremendous transformation of the possibility of production. So I 

agree exactly. The traditional values I call them. Some people say 

old values. I like to use traditional values. The traditional values 

that got us from the pre-Industrial Age into the Industrial Age that 

made the American century in the economy will work just fine in 

the digital. 

Mr. GONZALEZ. Thank you. 

And I know my time is up, but I want to give each member of 

the panel just a minute to just comment. I mean, it is a simple 

question. I mean, there are really people that believe that we cannot continue as we have since time immemorial with certain legal 

principles that have assured competition. 

Mr. Manne? 

Mr. MANNE. Thank you. The distinction that Mark identified between the ability to foreclose competition through non-technological 

means and technological means is a distinction without a difference. Whether you can foreclose access to the railroad by fiddling with the technology of the railroad or whether you can do it 

through contracts and pricing doesn’t change, in my mind, anything about the way we understand foreclosure and the way our 

laws of developing economics have developed to understand whether those kinds of practices are pro-or anti-competitive. 

Mr. CLELAND. I don’t think that, you know, technology should 

change laws or ethical practices or what is right. I mean, what you 

are describing is technology determinant, which is if technology enables it, it should happen, it should be allowed. 

And there is a lot of things that can be done with innovations 

that are unethical, illegal or disastrous. And so, you know, innovation—there can be good innovation; there can be bad innovation. 

And the problem with where the Internet is gone, and that example you said about it allows content to be out there very free—there 

is an inherent bias for an advertising model. 

We would not have a problem in the Internet with advertising 

right now, had the FTC enforced antitrust law and not allowed 

Google-DoubleClick to get through. Basically, the FTC tipped 

Google to a monopoly. They gave them all the users they didn’t 

have, all the advertisers they didn’t have, and all the publishers 

they didn’t have. And no one else is even close. 

I testified before the Senate on this. All the things I predicted 

on that of how that would tip them have occurred. That was a seminal decision, and the FTC blew it. I was in. I talked to all the comVerDate Aug 31 2005 09:38 Mar 01, 2011 Jkt 000000 PO 00000 Frm 00163 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\091610\58251.000 HJUD1 PsN: 58251
160 

missioners on that. They had a choice to make, and they made it 

wrong. 

And now we are living with the ramifications of that terrible decision, because basically, we aren’t having a subscription model and 

an ad model. What we have right now is a monopoly ad model that 

is predatorily going after subscription model. 

Mr. GONZALEZ. Mr. Reed? 

Mr. REED. I would actually agree with Mr. Manne about the difference without a distinction. I think the one change or the one reality we have to recognize in the high-tech era, if we call it anything like that, is that the rules need to be applied equally. 

You mentioned earlier cases, and I think what we have to understand is since the door has been opened, since the invitation has 

been extended for antitrust to be in the business of high-tech, what 

this Committee and the Justice Department and others need to do 

is make sure they are applied equally and so that it is not strictly 

applied to one company with greater force than to another. 

Other than that, I think we have to take a very cautious approach to it, but as long as the rules are applied equally, businesses can make intelligent decisions, the FTC can make intelligent decisions about the direction it goes. I think that it is core. 

It is more about the fairness part of it. 

Mr. GONZALEZ. Mr. Black? 

Mr. BLACK. Very briefly, fundamentally, antitrust is really about 

power and the ability to deal with abuse of power by the people 

who have power. The desire to dominate is human nature. We understand that. We have simply concluded that from a societal 

standpoint, we want to curb that to some extent, and yet not kill 

the energy that goes behind the drive to succeed. 

But what we face in the high-tech world in many parts of it is 

that technology has challenged old business models, and we have 

seen a counter attack by the business models trying to preserve in 

some cases really obsolete ways of doing business. And a lot of 

intermediary players, frankly, have been made obsolete, and they 

are trying to fight back and attack to do it. 

And it is a little bit like the horse and buggy makers who tried 

to stop paved roads from coming in the way. It doesn’t mean the 

new way is necessarily better. I think maybe it is, but it really is 

inevitable that we will have a digital and global marketplace, and 

we have got to deal with it in a realistic way. 

And old models may have made certain players happy, but we 

need to find new business models, and they are being created. And 

it is not as simple as subscription versus, you know, ad. I think 

there are going to be a lot of hybrid variations of how to do business here, and we do want to let experimentation take place. 

We don’t want to say right off the bat—I mean, advertising on 

the Internet as a very active part of funding is relatively new. We 

are not talking about decades. We are talking about a much smaller timeframe. So we need to let things play out. 

At the same time we have always been committed that when we 

see a real chokepoint, when we see artificial barriers being created, 

when we see players who have a lot of power making conscious efforts to in effect block people, then that takes some extra scrutiny, 

if not real action. 

161 

Mr. GONZALEZ. Thank you. 

Mr. Feinstein? If you can get a little closer—— 

Mr. FEINSTEIN. I am going to decline Mr. Cleland’s implicit invitation to revisit the DoubleClick decision, which in any event preceded my time at the FTC. 

But I do want to answer your question by saying that there is 

no question that business models are evolving. There is no question 

that technology is evolving very rapidly. And our challenge is to 

make sure that we understand these developments. 

You know, we have very talented people, both lawyers and economists, and who specialize to some degree across the bureau of competition and in high-tech markets. And so we are, you know, we 

are—and there is a sense in which we are all playing catch-up ball 

in terms of the facts and understanding the models. 

But I don’t think we need to change the legal mechanism that 

exists under the antitrust laws to address problems that the new 

models or the new technology may bring to bear. 

Mr. GONZALEZ. Thank you very much. 

Thank you for your patience, Mr. Chairman. 

Mr. JOHNSON. Thank you. 

Next we will hear from Mr. Polis. 

Mr. POLIS. Thank you so much, Mr. Chairman, and what an important panel, and a fascinating panel as well. 

I will have a few comments to start. There is a couple of areas 

I want to get into. During the earlier part of the panel, I was trying 

to look up some viewership figures. There was some testimony, I 

think, from the panel, and Mr. Cleland was somewhat alarming 

about this television aggregation that was being lobbed toward 

Google. 

And I looked at the World Cup viewership figures, about 715 million viewers worldwide. Of those, on YouTube were about 239,000. 

So that was a market share of—the little calculator on my laptop 

had a negative four exponent, which was I couldn’t figure out what 

that meant. Then I went on Excel and put out the—I am not a 

math guy—so it is actually .0003 or .03 percent of the World Cup 

viewers viewed it on YouTube. 

So now maybe that is due to a marketing failure of World Cup 

to look at some of those new media outlets, but I think what it 

shows is that much of the viewership and much of the media content is still delivered over legacy mechanisms. And obviously, this 

hearing is not about ABC, which broadcast the final game of the 

World Cup in the United States, which attracted some major subset of those 715 million viewers, but it is about in part the company that owns the venue that allowed for 239,000 people to view 

it. 

One of the critical components of all the content, the content that 

is on YouTube and other user generated sites, is that the copyright 

is retained by the creator of the content, and it is very simple for 

the creator of the content to take it off of YouTube and put it somewhere else. Insofar as YouTube has a business model, it generally 

is aligned with working out some type of revenue share with regard 

to the rights that may or may not involve exclusivity. 

Certainly, if looking down the road we saw some monopolization 

of content right with one particular outlet, I think that would be 

162 

of antitrust concern. But I am not so sure that with regard to the 

delivery mechanism separated from the content rights, there is 

nearly as much concern. 

Before I get to the next question, I would like Mr. Black specifically to comment on that, as well as comment on the switching 

costs, which I think could very well be in this equation as well, if 

somehow an outlet made it more difficult to switch your content 

that you own to another outlet or for a user to switch to another 

outlet. That also could be of issue. 

But I would like to see if Mr. Black would like to address that. 

I will give Mr. Cleland a chance as well. 

Mr. BLACK. Well, the whole concept of switching costs is a very 

important, I think, consideration in antitrust law in general and 

deserves a lot of scrutiny. Keep in mind that antitrust cases, the 

real major cases that have been brought, and the Supreme Court 

has repeatedly said are fact-based, and the facts of really getting 

into deep analysis of what is involved, what are the barriers to 

entry, what are the obstacles for switching become a critical part. 

In my testimony I talked about the IBM case and the deep integration into an enterprise’s operations of the mainframe and the 

problems that caused in terms of the ability to switch. The use of 

intellectual property—— 

Mr. POLIS. On that real quickly with the gray—do you see any 

of those warning signs about the strategic direction of Google causing difficulty to switch among their users, or do you think those 

warning signs are absent? 

Mr. BLACK. No, I really see—frankly, of pending cases, I see the 

Comcast merger—a much greater focus should be given to that and 

a concern than I do with other things going on on the Web. 

There you have established entity, which has a major, you know, 

dominant duopoly role in terms of audience united in general, the 

commercial content industry is fairly concentrated. And so that 

merger, although we have not yet—yet—directly involved ourselves 

in that proceeding, we have a lot of questions that are being asked, 

among our membership about whether or not—how that would 

play out. 

I think it raises very serious questions, and that merger would 

clearly have impact in consolidation and choice of content programming. It is hard to predict all the implications, but it raises the 

possibility of abuse in a variety of ways. 

Mr. POLIS. Before I actually get to Mr. Cleland, just a quick 

question for Mr. Feinstein on this. 

Is your ability to look at switching costs—is that something that 

you sufficiently have, feel you have, under statute with regard to 

analyzing the competitive situation in various industries? 

Mr. FEINSTEIN. I believe that it is, and it is absolutely something 

that we look at very closely when we are conducting investigations. 

Mr. POLIS. Great. 

Let me give Mr. Cleland a quick chance to respond, and then I 

want to get onto—— 

Mr. CLELAND. Yes, to personally address your World Cup point, 

thank goodness we do have copyright, and people do respect it. And 

the only way to produce something like the World Cup or produce 

163 

high-quality content is to have a business model that can reap the 

benefits. 

I did an interesting math on on my blog last night. Google sent 

16,425,000,000 ads a year, according to their calculations. They 

make one-sixth of one penny per ad. So no one else is going to 

make much money other than Google in that model, when you do 

the math. 

Now, to get to your question, I most respectfully disagree with 

the one click away view about the user and there is no sticky. That 

is a false direction of the way that they try and frame it. Consumers are not the consumer here. Users are not. Users are the 

product. The consumer or customer that pays all of the freight for 

Google, all of the freight, the $26 billion a year, are advertisers and 

publishers. They are the consumer. They are the customer. 

The problem—and I came up with a term to explain this in the 

Senate—is there is an Internet content paradox. Users, who are 

the consumer here, have almost infinite choice to get the content. 

However, on the other side, suppliers, in reaching all users, have 

a bottleneck. If you are an advertiser and you want to reach the 

Internet audience, you have got Google and then you have got 

Microsoft and Yahoo. And, you know, it is 75 percent of the audience versus the rest. 

And every advertiser has decided with their feet. They are going, 

‘‘Well, I want to get to all the customers. I want to get all the people who will pay me so that I can produce content.’’ So the switching cost, in order to do it fairly and accurately in this business 

model, you must look at the switching cost for a consumer advertiser, a consumer publisher. And those switching costs are extraordinarily high. 

Mr. POLIS. If I can just real briefly follow up with that, Mr. 

Chairman, can I have about 2 more minutes or so? Oh, thank you 

so much. 

The most popular YouTube video is a Justin Bieber video—I 

don’t know why it is the most popular, but it is—about 310 million 

views. Now, alternate models—if for some reason Justin Bieber or 

his guardians didn’t want that information on YouTube, they could 

make that available on a justinbieber.com site. They might not 

have the full 310 million viewers. Some of them might come with 

the platform, but I probably believe that in its own right that 

would garner hundreds of millions of views from teenage girls 

across the country regardless of how it was placed on the Web or 

where. 

Now, there is the business model element as well, and obviously 

Justin Bieber’s business managers have chosen to outsource to 

YouTube the monetization of that specific content, but he could 

have done that in-house as well, had they decided to. It is a very 

simple technology, very easy to implement. He could have sold it 

through sponsorships or anything else. Any content provider is in 

that same situation. 

But I do want to get on to the Apple and iPhone discussion as 

well. I talked to a app maker in Colorado about this, and this is 

actually in reference to, I think, Mr. Reed’s testimony. Of course, 

a brief history lesson—we all know the story, of course, the proprietary Apple operating system that led to them having a declining 

164 

share, of course, on the hardware market, the computer market, 

with PCs and the Windows operating system generally conceding 

as winning that war. 

And to a certain respect I think, Mr. Reed, you would argue, and 

I would tend to agree, that that is a kind of natural guardian to 

this. To the extent any operating system becomes too proprietary, 

it loses a competitive advantage. So it is a very fine balancing issue 

that any owner of a proprietary system might be able to engage in. 

So the question is—again, this is from one of the app makers in 

my district, who says the real problem here is Apple’s ability to 

prevent the consumer from choosing what applications are allowed 

on their device. 

Now, that may very well be an issue, but my question is to what 

extent is it an antitrust issue and to what extent is it a competitive 

issue of Apple stabbing their own foot, as they did with regard to 

operating systems, if they create too proprietary a standard that 

will reduce, I think you said, a 15 percent market share that 

iPhones or iPads have today to perhaps an even lower market 

share? 

Mr. REED. Congressman Polis, I think you just answered my 

question. The reality is is that the only way developers are interested in developing for the iPhone is that they get something back 

from it—either fame, recognition, money, advertising sales. 

And what is interesting is I am a licensed Apple developer. I 

have signed the NDA. But I will tell you the interesting part of all 

that is of my friends who are developers, they are constantly, constantly looking at other platforms as an opportunity. 

If the restrictions are too tight, a perfect example is Unity, and 

I mentioned this in my testimony. Unity makes tools that make 

cool games. They have 25 percent of the iPhone app development 

market. But they also have a huge chunk of the Xbox 360 market. 

People are porting it to Android. They have 200,000 developers just 

for Unity alone. 

So our folks are a roving band of professionals, who are looking 

for the best place to get either the coolest technology, the most 

money, or the most opportunity for fame. 

Mr. POLIS. So in the public policy context, and maybe Mr. Feinstein can add his two cents to close off on this, I mean, to a certain 

extent it is a discussion between to what extent is this a public policy issue or an antitrust issue and to what extent is it an issue of 

a system becoming so proprietary that it reduces its own capacitive 

ability to function in the marketplace? 

And I wonder if Mr. Feinstein has anything to close on that. 

Mr. FEINSTEIN. Of course. And once again I forgot to turn on the 

mic. I will answer this hypothetically rather than with respect to 

any particular company. But I think the answer that you just 

heard is, and which I think Mr. Reed indicated was an answer you 

had already given in a prior question to your own question, is absolutely right. 

I mean, if you have a proprietary system that becomes dominant, 

that can be problematic if it has an exclusionary effect on the ability of rivals to come into the market. If, on the other hand, there 

is a proprietary system that has a relatively small market share 

and it is just one of a number of models and people have the ability 

165 

to vote with their feet by moving to other alternatives, that suggests the absence of that hypothetical of an antitrust problem. 

Mr. POLIS. Thank you. 

And I yield back the remainder of my time. Somebody turned up 

my microphone in the interim, but thank you, and I yield back. 

Mr. JOHNSON. Thank you. It wasn’t I, but perhaps staff. 

But anyway, this has been a very intriguing calendar—oh, excuse me—panel discussion, many different issues that we just really nicked at. Many of these issues can be taken separately and 

delved into in great detail, and prioritizing them would be a problem, at least for a guy like me. But I will tell you I look forward 

to us delving into each one of these issues and continuing also to 

just look at the broad marketplace. 

And I would like to thank all of the witnesses for their testimony 

today. And without objection—— 

Mr. GONZALEZ. Mr. Chairman? May I make a unanimous consent 

request? And that would simply be to submit to the representative 

of FTC, Mr. Feinstein, a written question regarding the attorney 

general of Texas’ investigation that they have announced regarding 

the ranking by Google and such. 

I didn’t want to touch on it today, because there was a more important question, but nevertheless, this is of some import and curiosity, so I would like to submit it in writing with your consent. 

Mr. JOHNSON. Without objection, Members will have 5 legislative 

days to submit any additional written questions, which we will forward to the witnesses and ask that you answer them as promptly 

as you can to be made a part of the record. And without objection, 

the record will remain open for 5 legislative days for the submission of any other additional materials. 

Once again, I would like to thank this distinguished panel for 

your insight and for your time. I am sure that every industry can 

argue why it deserves to be treated differently under the antitrust 

laws, but competition left unattended can die just as easily as it 

can flourish. In the current economic climate, it is more important 

than ever that we do everything we can to nurture competition 

without crushing the engines of commerce that drive our economy. 

It is important that we remember that we will always be ignorant as far as the future is concerned. We can speculate, but we 

never know what will happen, and we certainly don’t want to restrain what could happen that would be good for mankind. But at 

the same time, we don’t want to fall into a situation where we have 

got a clamp on creativity and in the marketplace, which translates 

then into life itself. We want to keep this a vibrant area, always 

shedding and growing. 

With that, this hearing of the Subcommittee on Courts and Competition Policy is adjourned. 

[Whereupon, at 1:07 p.m., the Subcommittee was adjourned.] 

(167) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

168 


Smith-1.eps
169 


Smith-2.eps
170 


Smith-3.eps
171 


Smith-4.eps
172 

f 


Smith-5.eps
173 


Coble-1.eps
174 


Coble-2.eps
175 

f 


Coble-3.eps
176 

MATERIAL SUBMITTED BY THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, CHAIRMAN, COMMITTEE ON THE JUDICIARY, AND MEMBER, SUBCOMMITTEE ON COURTS AND COMPETITION POLICY


A-1.eps
177 


A-2.eps
178 

f 


A-3.eps
179 

RESPONSE TO POST-HEARING QUESTIONS FROM RICHARD FEINSTEIN, DIRECTOR, 

BUREAU OF COMPETITION, FEDERAL TRADE COMMISSION, WASHINGTON, DC 


B-1.eps
180 


B-2.eps
181 


B-3.eps
182 


B-4.eps
183 

Æ 


B-5.eps